                                   NO. 07-02-0279-CV

                             IN THE COURT OF APPEALS

                      FOR THE SEVENTH DISTRICT OF TEXAS

                                     AT AMARILLO

                                        PANEL D

                                  FEBRUARY 27, 2004

                         ______________________________


        THE KANSAS CITY SOUTHERN RAILWAY COMPANY, APPELLANT

                                            V.

                           HENRY NUSSBECK, APPELLEE


                       _________________________________

           FROM THE 58TH DISTRICT COURT OF JEFFERSON COUNTY;

           NO. A-160267; HONORABLE JAMES W. MEHAFFY, JR., JUDGE

                         _______________________________

Before QUINN and REAVIS and CAMPBELL, JJ.


                                        OPINION


      Appellee Henry Nussbeck brought suit under the Federal Employers’ Liability Act

(FELA), 45 U.S.C. §§ 51-60, against his employer, appellant The Kansas City Southern

Railway Company (KCS), alleging on-the-job injuries. The suit was settled before trial, but

during preparation of the settlement documents the parties disagreed over whether KCS

was entitled to set off $8177.81 in benefits paid Nussbeck under a Supplemental Sickness
Benefits Plan. After a hearing on that issue, the trial court entered judgment in accordance

with the settlement and denying KCS the setoff. The appeal thus presents the single issue

whether the trial court erred in denying KCS its requested setoff. We will affirm the trial

court.


         The facts are not in dispute. Nussbeck was a carman foreman for KCS and a

member of the American Railway and Airway Supervisor Association (ARASA). In 1997,

ARASA negotiated a new compensation agreement for its members with KCS. Among

other provisions, the agreement made the supervisors represented by ARASA eligible to

participate in an existing benefit plan established by KCS and other railroads for their

railroad shop craft employees under a 1979 agreement, the Supplemental Sickness

Benefit Agreement. The benefit plan was implemented through an insurance policy issued

by Provident Life and Accident Insurance Company, and was further described in a

Supplemental Sickness Benefit Plan Document and a Plan Summary.


         Under the 1979 agreement with craft employees, KCS and the other railroad

employers paid the premiums for their employees’ participation in the Supplemental

Sickness Benefit Plan. The 1997 agreement between ARASA and KCS provided, though,

that the supervisors would pay the premium for their participation in the plan through

monthly payroll deduction.1


         1
        The relevant language from the 1997 ARASA agreement with KCS reads as
follows:

ARTICLE VI - PROVIDENT INSURANCE

         Effective January 1, 1997, the Carrier [KCS] will place employees [ARASA

                                            -2-
       Applicable federal law, Section 5 of FELA, 45 U.S.C. § 55, renders void any contract

by which a common carrier exempts itself from liability under the Act, but provides that, in

any action brought against a carrier under the Act, the carrier may set off against amounts

for which it may be liable sums the carrier has contributed or paid to insurance or similar

benefits paid to the injured employee on account of the injury.


       Citing cases in which employers were allowed setoff, under 45 U.S.C. § 55, of

payments made to plaintiff-employees under benefit plans created by the employer, KCS

contends that case law applying 45 U.S.C. § 55 to plans like the Supplemental Sickness

Benefit Plan mandates the conclusion that it is entitled to set off Nussbeck’s benefits

against its FELA liability to him. Nussbeck responds that his payment of the premium cost

for his coverage under the plan distinguishes this case from those cited by KCS and

requires that the benefits be ignored in calculating his recovery against his employer, under

the general rule applicable to compensation received from a collateral source. Nussbeck

cites Gypsum Carrier, Inc. v. Handelsman, 307 F.2d 525 (9th Cir. 1962), a Jones Act case

which treated a state-created unemployment disability fund, supported primarily by

employee contributions and to which the employer had made no contribution, as a

collateral source. Id. at 535.


members] within the Provident Life and Accident Insurance Company Policy No. R-5000
Supplemental Sickness Benefit Plan for railroad shop craft employees (hereinafter
“Provident”) under the conditions specified hereinafter:

       (a)    Provident is an insurance policy and, as such, the stipulations therein are
              subject to change; therefore, employees covered by Provident are subject
              to the conditions set forth in its policy (and subsequent revision [sic] thereto).
       (b)    The monthly premium (cost per employee) will be paid by each employee
              through payroll deduction in the first period of each month.

                                              -3-
       There is a third category of cases, in which the courts have found that benefits

funded with payments made by the employer were nonetheless to be treated as from

independent, collateral sources, and thus not subject to setoff, because the court

concluded that the benefits were part of the employee’s compensation.2 See Hall v.

Minnesota Transfer Ry. Co., 322 F.Supp. 92, 96 (D.Minn.1971); Southern Pac. Transp. Co.

v. Allen, 525 S.W.2d 300, 306 (Tex.Civ.App.--Houston [14th Dist.] 1975, no writ).


       As noted, the Supplemental Sickness Benefit Plan was established by the railroads

pursuant to a collective bargaining agreement. The plan does not bear the earmarks of

those 45 U.S.C. § 55 was designed to prohibit. See Folkestad v. Burlington N., Inc., 813

F.2d 1377, 1379-80 (9 th Cir. 1987) (noting the legislative history of 45 U.S.C. § 55 indicates

it was enacted to bar devices used by railroads to exempt themselves from full liability for

employee injuries). Further, although benefits are payable without regard to fault or the

employer’s liability,3 the terms of the plan evidence the railroads’ intent that benefits paid

under the plan be credited against any obligation the employer owes under FELA with

respect to the injury and not give rise to double liability. 4 We conclude, though, that




       2
        This “fringe benefit” argument can thus be seen simply as another way of stating
that the benefit has been paid for by the employee. Cf. Hall, 322 F.Supp. at 96.
       3
      See Hall, 322 F.Supp. at 96-97, distinguishing insurance coverage obtained by an
employer and limited to injuries on the job for which the employer might be liable.
       4
        The courts have construed 45 U.S.C. § 55 to recognize employers’ legitimate
interests in avoiding double liability for the same injury. See Folkestad, 813 F.2d at 1380;
Clark v. Burlington N., Inc., 726 F.2d 448, 451 (8th Cir. 1984). KCS does not directly argue
that disallowance of setoff causes it double liability to Nussbeck.

                                              -4-
Nussbeck’s payment of premiums disentitles KCS to set off the benefits he received

against its FELA liability to him, even under the cases cited by KCS.


      KCS relies on Clark v. Burlington N., Inc., 726 F.2d 448 (8th Cir. 1984); Folkestad,

813 F.2d 1377; and Burlington N. R.R. Co. v. Strong, 907 F.2d 707 (7th Cir. 1990). KCS

urges that this appeal should be governed by the holdings of those cases that the source

of premiums is not the determinative factor in deciding whether benefits should be

regarded as emanating from the employer or from a collateral source, and that courts

instead focus on the purpose and nature of the fund and the benefit payments. 5 Since the

nature of this benefit plan is such as to permit setoff,6 and the language of the plan

expressly provides for setoff,7 KCS contends, it is entitled to setoff. But the contention

takes the holdings of those cases out of their contexts. Although, as noted, each opinion

concludes that setoff of the benefits in question was appropriate, none of them reasonably



      5
          Clark, 726 F.2d at 450-51; Folkestad, 813 F.2d at 1381; Strong, 907 F.2d at 713.
      6
       Indeed, as KCS points out, Strong dealt with an earlier version of the same benefit
plan involved here, but with respect to a claimant for whom his employer paid the
premiums. 907 F.2d at 714.
      7
        The Plan Summary contains the following language: “if benefits are paid under this
Plan, the benefit payments will be deducted from any payment for loss of wages in any
case in which the employer or a third party is liable for the injury.”

      Nussbeck contends that the plan language providing for setoff does not apply to
supervisors because there is no language in KCS’s 1997 collective bargaining agreement
with ARASA comparable to language in the 1979 agreement. KCS points out that the Plan
Summary is expressly made a part of the plan under the terms of the Plan Document, and
the Summary restates the employer’s right of setoff clearly. For purposes of this opinion,
we accept KCS’s position that the terms of the plan expressly made applicable to ARASA
members include the provision for setoff of benefits against any liability of KCS for lost
wages under FELA.

                                            -5-
can be read to say that 45 U.S.C. § 55 permits an employer to set off benefits for which it

has not paid.


      The Folkestad court’s discussion of the issue clearly is premised on the requirement

that to be eligible for setoff, benefits must be paid for by the employer. There the court

referred to Gypsum Carrier, in which, as noted, the same circuit held that benefits a

seaman received from a state disability fund supported primarily by employee

contributions8 would not reduce his Jones Act recovery against his employer, and stated,

“Thus if employee contributions pay for the insurance, benefits are regarded as collateral

to the employer and setoff is prohibited.” Folkestad, 813 F.2d at 1380.


       The Clark opinion is similarly premised, stating:


             A problem arises in distinguishing a fringe benefit from a benefit
       meant to indemnify an employer against future liability. A benefit may be
       exempt from setoff under the collateral source rule even though the
       employer is the sole source of the fund. The important consideration is the
       character of the benefits received, rather than whether the source is actually
       independent of the employer.


726 F.2d at 450.


       In Strong, the employee plaintiff was covered by a 1973 version of the Supplemental

Sickness Benefit Agreement. The agreement contained language identical to that in the




      8
        The court quoted from Gypsum Carrier: “The tortfeasor should not be required to
compensate twice for the same injury, but he should not have the benefit of payments to
the injured person which he did not make.” Folkestad, 813 F.2d at 1380, quoting Gypsum
Carrier, 307 F.2d at 534.

                                            -6-
1979 agreement at issue here.9 Strong argued that the benefit payments were intended

as a fringe benefit of his employment and not subject to setoff. 907 F.2d at 713. The court

noted that Burlington paid the entire cost of funding the benefit program and pointed to the

plan language indicating the railroad’s intent that payments made under the plan not

duplicate amounts received for loss of wages from the employer. Id. at 714. The court

relied on the Clark and Folkestad opinions in rejecting Strong’s contention that setoff of the

benefits would violate 45 U.S.C. § 55, and holding that setoff was appropriate. Id. at 713-

14. The Strong opinion must be seen as founded on the fact Burlington paid for the

coverage.


       KCS refers also to the statement in the Fifth Circuit opinion in Haughton v.

Blackships, Inc., 462 F.2d 788, 790 (5 th Cir. 1972), that the mere fact an employer has

contributed to the fund from which an employee receives benefits does not necessarily

mean that the fund is not a collateral source. KCS posits that the opposite must also be

true, and that the mere contribution by employees to the fund from which benefits derive

does not establish the benefits as a collateral source. KCS cites no authority for its

assertion, which seems to us generally contrary to the language of 45 U.S.C. § 55 and

cases applying it. See, e.g., Folkestad, 813 F.2d at 1380.




       9
         The 1979 Supplemental Sickness Benefit Agreement contained a paragraph stating
that the parties did not intend benefits under the plan to duplicate any amount recovered
for loss of wages, but instead intended that benefits under the plan would satisfy any right
of recovery for loss of wages against the employing railroad to the extent of benefits paid
and would be offset against any such right of recovery. The corresponding paragraph from
the 1973 agreement is quoted in Strong, 907 F.2d at 709.

                                             -7-
       KCS also points out that the Benefit Plan is “overwhelmingly funded” by the

employer, and asserts that Nussbeck’s premium for participation in the plan was lower

because of the large size of the insured group, a factor that KCS sees as a subsidy to

Nussbeck and other ARASA members. Such an unquantified benefit to Nussbeck does not

render the payments made to him sums contributed or paid by his employer, for purposes

of 45 U.S.C. § 55.


       Concluding that the trial court did not err in denying KCS setoff of amounts paid

Nussbeck under the Supplemental Sickness Benefit Plan, we overrule appellant’s issue

and affirm the trial court’s judgment.




                                                James T. Campbell
                                                    Justice




                                          -8-
