Gapusan

In this personal injury action, City of San Diego (City) intervened seeking reimbursement for workers’ compensation benefits it paid its employees, Police Officers Edmund Gapusan and Frederick McGee. (Lab. Code, 1 § 3852.) We conclude the trial court violated section 3860, subdivision (b) by distributing half of the $200,000 settlement proceeds to the officers under equitable apportionment principles. We reject, however, City’s contention the error automatically entitles it to the entire settlement amount. While the court must adhere to the statutory scheme in allocating settlement proceeds subject to an employer’s reimbursement rights, the employer’s priority is subject to certain exceptions. Accordingly, we reverse the judgment and remand for a new evidentiary hearing and redistribution of the proceeds in conformance with the views expressed herein.

Factual and Procedural Background

In 1994, Gapusan and McGee were seriously injured when a drunk driver, David Patrick Jay, caused his pickup truck to collide with their patrol car. *739 As a result, McGee was forced to retire and Gapusan was alternately off work and limited to light duty for more than two years.

Gapusan…