“Third Party” Lawsuits and Workers’ Compensation

A third party lawsuit refers to any claim against someone who is not your employer for an injury that you suffered while working. To have a valid third party claim, the responsible party has to be considered a “stranger to the workplace.” Strangers to the workplace are typically not engaged in the same trade or business as the employer. Third party claims are often pursued in cases arising from car accidents, premises liability matters, and defective products.

What Are The Differences Between Workers’ Compensation Claims And Third Party Lawsuits?

In a traditional lawsuit, the plaintiff will be required to prove that the party that caused their injury was negligent or otherwise legally liable. In contrast, workers’ compensation injuries are compensable if they are sustained within the course and scope of your employment. The employer’s negligence does not have to be proven. There are also additional advantages and drawbacks to worker’s compensation claims.

In terms of damages, workers’ compensation claims and lawsuits are different. In both cases, you can seek payment of your medical bills, and lost wages. However in workers’ compensation actions, you cannot collect damages for pain, suffering, inconvenience, or mental anguish. While this lack of remedy may initially appear unfavorable, there are advantages to pursuing a workers’ compensation claims.

Personal injury lawsuits are not known for being quick to litigate. In some cases, it may take years to see the inside of a courtroom. Workers’ compensation claims, on the other hand, are usually quicker to reach resolution. In addition, you are also able to file concurrent workers’ compensation claims for multiple issues. Expert testimony is typically not required in workers’ compensation claims because the claimant’s medical bills and records are subject to admission without external testimony or authentication. This can help keep litigation costs low.  There are also abbreviated hearing procedures for some claims that may avoid the necessity of appearing in person for a hearing.

Advantages of Workers’ Compensation

Lifetime Medical Awards

One of the massive advantages to filing a workers’ compensation claim is that successful filing will result in entry of an award of lifetime medical benefits for all injuries that are causally related to the workplace accident. This includes payment for consequential injuries that are a “compensable consequence” of the original injury. This benefit alleviates the need for expert testimony regarding future medical needs that would typically be required in a personal injury case.  It also avoids the possibility of error resulting from a jury award in the event that the jury fails to adequately award damages for future medical treatment. In workers’ comp cases, all issues regarding payment of medical benefits are resolved as they arise over the life of the claim, either by agreement, mediation, or a hearing.

Ongoing Payment of Wage Loss Benefits

As opposed to a lawsuit where a one-time award is made by a judge or jury that is intended to include compensation for all past and future wage loss, workers’ compensation benefits are paid on an ongoing basis and are subject to adjustment and modification depending upon the status of the claimant’s ability to work. Benefits are paid within a structure that sets the minimum and maximum compensation rates. Temporary total disability is paid at a rate of two-thirds of the claimant’s pre-injury wage. Temporary partial disability is also available to make up the difference in wages in the event that the claimant is unable to return to their pre-injury employment, but is working in a light-duty capacity with a wage reduction.

Loss of Earning Capacity

In a lawsuit, loss of earning capacity is typically established via expert testimony.  This generally requires a medical expert and, in some cases, a vocational expert.  On average, the cost to bring an expert to trial can vary from $1,500.00 on the low end to as much as $10,000.00 depending upon the field of expertise.  Based upon a “battle of the experts”, the jury or judge will be left to determine whether and to what extent the Plaintiff has suffered a loss in earning capacity.  The award is always discretionary and can vary wildly depending upon the facts of the case, the fact finder, and even the jurisdiction where the case is pending.

In a workers’ compensation case, payment for a loss of earning capacity is achieved with some precision and the result is generally predictable.  Awards of permanent partial disability for a loss in earning capacity due to a workplace accident are determined based upon a physician’s disability rating.  Utilizing this disability rating, the Commission will determine the amount of compensation to be paid based upon a set schedule.   The schedule for payment of permanent partial disabilities is contained in Section 65.2-503 of the Code of Virginia.  The Commission’s awards are determined by multiplying the percentage of impairment by the number of weeks of disability that are available for a “rated member”.  Rated members include arms, hands, fingers, legs, feet, toes, eyes and ears.  Impairments to lung function may also be rated for Pneumoconiosis and Byssinosis.  The amount of compensation available for each rated member is determined by statute.  As with a lawsuit, the defendant can contest the level of impairment through the presentation of expert testimony or submission of medical records.

Should I Refrain From Filing A Workers’ Compensation Claim To Avoid A Possible Lien?

In the field of personal injury law, cases with workers’ compensation liens are some of the hardest to resolve. Pursuant to Section 65.2-309 of the Code of Virginia, filing any claim against an employer for workers’ compensation will trigger the attachment of a lien in favor of the employer. In addition, if the employee does not pursue a “third party”, the employer can pursue it on behalf of the employee.

If you have a case where you are able to file both a workers’ compensation claim and a third party lawsuit, you may be tempted to forego filing a workers’ compensation claim to avoid a lien on the proceeds of your injury settlement. This is typically an error. While, there are exceptional cases where it may be advantage to avoid filing a workers’ compensation claim, it is almost always a better option to file and pursue one.

A well-executed legal strategy will utilize the workers’ compensation claim to finance and enhance a third party lawsuit.  This can be particularly true where the claimant has limited funds to procure medical treatment and where a sustained loss in earnings can cripple the claimant’s personal finances, making the payment of litigation costs difficult or impossible. In addition, the payment of medical bills will alleviate the need for your attorney to negotiate provider liens which can sometimes be an impediment to settlement of an injury lawsuit.  The key to executing a dual claim strategy is knowing which claim to settle first and how to maximize the benefit from each claim, with the ultimate goal being to achieve a dual recovery if possible.

How To Negotiate a Workers’ Compensation Lien

As noted above, a workers’ compensation insurance carrier or self-insured employer can assert the right to recover from the proceeds of a related injury settlement or verdict, a dollar for dollar recovery up to the total amount they have paid.  They can also claim a credit against the payment of future benefits up to the amount of the injury verdict or settlement.  This right of recovery can be reduced to account for the payment of attorneys’ fees and litigation costs.  Under most circumstances where payment has been make pursuant to an award, the lien will attach and dealing with the lien can be difficult. Because the lien arises by statute, it’s not something that can be ignored.

When negotiating a lien with a workers’ compensation carrier, you must to first determine whether settlement of the underlying workers’ compensation claim is possible or preferable.  Assuming that you have picked the right time to consider settlement of your case, you should have already collected a substantial benefit from the claim itself.  This would include the payment of wage loss or medical benefits.  In some cases, these payments can total hundreds of thousands of dollars.  If the carrier is aware of a third party lawsuit, it may be looking to recover these losses if possible.  This is where it pays to know the value of your claim.

Placing a present value on a workers’ compensation claim is somewhat of an art form.  Calculations of future exposure on these claims over a claimant’s life expectancy can reach hundreds of thousands of dollars depending upon the nature of the injury.  As a result, the carrier will be looking to jettison this future liability if possible.  This can create substantial settlement leverage that can allow you to escape a lien entirely and put money additional money on the table.  That’s why it pays to consult with an attorney that knows how to determine the value of your claim and how to handle negotiations with the workers’ compensation adjuster.

Once you have determined the remaining value of your workers’ compensation claim, the negotiations can commence.  If the claim has substantial residual value, negotiations should focus on this future liability and not the lien.  In the negotiation, the lien should be treated like an afterthought and not a bargaining chip.  Ultimately, the lien waiver will be the money maker later in the negotiation. This approach falls in line with the adjuster’s traditional role of minimizing future payments and reducing or eliminating the commitment of reserved funds.  The lien constitutes money that has already been spent, accounted for, and, in most cases, written off.  The goal in this negotiation is to squeeze the last dollars out of the comp claim and to obtain a full waiver of the lien if possible.

When negotiating with the workers’ compensation carrier while a third party lawsuit remains pending, it is important to emphasize that lawsuits can be unpredictable.  Negotiation of the lien should start from the perspective that should the lien remain unresolved, the lawsuit will be forced to go to trial. During these deliberations, the attorney should take a similar role to that of a defense attorney, casting doubt upon the prospect for recovery should the lawsuit go to trial.  The attorney should continually remind the adjuster that success of the lawsuit is shaded in doubt and that prevailing on the merits is by no means guaranteed.  This creates uncertainty in the negotiation which is difficult for the adjuster to quantify and properly monetize.  The attorney can exploit this uncertainty because his knowledge of the claim typically exceeds that of the adjuster who may be handling hundreds of claims and have little to no independent understanding of the value of the underlying lawsuit or the applicable law.  The attorney may personally believe that they have a very strong case and may believe that the lawsuit will be successful and lucrative.  But he is not necessarily required to disclose such information in a settlement negotiation regarding the lien so long as he does not materially misrepresent the underlying facts of the case or the applicable law.

Zero-Dollar Settlements – Tools for achieving waiver of a looming workers’ comp lien.

As noted previously, a successful workers’ compensation claim can result in substantial payments to or on behalf of a claimant for wage loss and medical benefits.  In some cases, these payments are of limited duration and the award exists on paper but is not in pay status.  These claims have matured to the point where they have paid most of their value.   Any residual value is tied to future unknowns, litigation and administrative costs.  However, these claims still offer an interesting prospect. Enter the zero-dollar workers’ compensation settlement.

As a whole, insurance can be conceptualized as a way to minimize uncertainty and control risk. Insurance companies utilize their considerable claims’ histories to determine likely future outlays and to set premiums.  But while, as a whole, insurance companies are good at spreading risk, their adjusters are not necessarily always correct in how they value of individual workers’ compensation claims.  Knowing this, insurance companies prefer to settle out claims whenever possible via a settlement.  The settlement provides certainty of outcome and forecloses any possibility of future liability. This concept is why zero-dollar settlements work.

In a zero-dollar workers’ compensation settlement, the claimant agrees to settle and close out the remaining workers’ compensation award in exchange for a full waiver of any existing lien on the proceeds of a third party settlement or verdict.  In this scenario, the carrier, having already written off the sums paid on the claim, would rather cut their losses and avoid future uncertainty.  In return, the claimant is now free to settle or litigate a third party claim free from the encumbrance of a lien.

Settlement of Third Party Lawsuits – What not to do.

It is important to note that there is in general a right and a wrong way to approach workers’ compensation liens.  The worst strategy is to treat the lien as an afterthought.  I you have reached a resolution of a personal injury case via settlement already, there is essentially no leverage to negotiate the workers’ compensation lien.  The carrier is free to take as little or as much of the settlement as they want to compromise amounts that they have paid, subject only to a reduction for attorney’s fees and litigation costs.  In addition, any residual amount remaining after the settlement can serve as the basis for the employer to claim a credit against the payment of future benefits.  In order to avoid making a blunder in negotiating workers’ compensation liens, it is imperative that you preserve as much leverage as possible in the negotiation.  The only way to do that is to maintain the third party claim as contested unless and until the lien is resolved.

Leaving the third party claim open for negotiation while the workers’ compensation lien is being negotiated provides leverage by creating uncertainty.  Every case, favorable or not, carries with it an accompanying risk.  As any attorney or judge can attest, you simply do not know, with any kind of certainty, what a jury will do with a given set of facts.    Keeping the third party case from settling pushes the case towards trial, increasing the risk that the claim could ultimately be unsuccessful.

The threat of a nonsuit by Plaintiff’s counsel on a claim that “is unlikely to be successful”, can, in some cases, provide the leverage necessary to achieve a settlement where the comp carrier has been reluctant to negotiate the lien.  Workers’ compensation carriers, on occasion, do subrogate claims for which they have incurred liability.  However, they generally avoid pursuing their own third party collections unless a Claimant totally abandons a claim at the outset.  Carriers are leery of incurring additional litigation costs in cases where the Claimant does not see any value to pursuing such a claim.  As a result any threat by the insurer to pick up the mantle of collection where a threat of a nonsuit is present should be dismissed as unlikely.  It is far more likely that the threat of a non-suit will inject risk into the negotiation that will force the carrier to yield concessions or risk losing out on any lien recovery.

What happens if the workers’ compensation lien is not protected?

Failure to protect a workers’ compensation lien can create unintended consequences.  The carrier can assert a right to repayment of every dollar paid in settlement up to the amount of its existing lien subject to a reduction for the cost of collection.  The carrier can also assert a credit against the payment of future benefits.  The failure to obtain the carrier’s approval to settle the claim can also serve as a permanent bar to the receipt of future compensation.  As a result, failure to consider and involve the carrier in the settlement of a third party claim is an error.