

 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]





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. 




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 (9th 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 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 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 contributions[8]
would not reduce his Jones Act recovery against his employer, and stated, AThus 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 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 (5th
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.




KCS also points out that the Benefit Plan is Aoverwhelmingly 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
 
 
 
 
 
 
 
 
 
 




[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 members] within the Provident
Life and Accident Insurance Company Policy No. R-5000 Supplemental Sickness
Benefit Plan for railroad shop craft employees (hereinafter AProvident@) under the conditions
specified hereinafter:
 
(1)              
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).
(2)              
The monthly
premium (cost per employee) will be paid by each employee through payroll
deduction in the first period of each month.


[2]This Afringe 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.


[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: Aif 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.


[8]The court quoted from Gypsum
Carrier: AThe 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.


[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.


