Issues in Third-Party Injury Claims: Workers’ Compensation Liens & Credits

Workers’ compensation does not provide injured workers with adequate compensation for all of their damages, particularly in cases involving serious injuries, lasting disability, and wrongful death.

Though workers’ comp is the exclusive remedy for injured workers in California, there are situations in which a worker injured in the course and scope of their employment may be able to recover damages through a civil personal injury claim, in addition to benefits received from workers’ compensation.

Personal injury lawsuits for workers who have also received workers’ compensation benefits are called “third-party cases.” This is where someone other than the worker’s employer has the caused the injury. For instance, if a worker is driving a vehicle while on duty for work and is involved in an accident caused by the negligence of the other driver, the worker has both a workers’ comp claim and a “third-party case” against the other driver.

For many injured workers, it can be financially advantageous to pursue both workers’ compensation benefits and civil damages. Attorneys representing injured workers with viable third party claims must be aware of the many challenges that arise from third party cases – including those which can affect a victim’s recovery – in order to maximize the compensation an injured worker ultimately takes home.

No Right to Double Recovery

California Labor Code § 3852 entitles employers (i.e. their workers’ compensation insurance carriers) to a reimbursement of benefits paid to or on behalf of workers (e.g. medical expenses) from any recovery the worker makes in a third-party civil suit.

There are a number of types of benefits that can be paid to or on behalf of an injured worker through the workers’ compensation system, including:

In wrongful death cases, death benefits and funeral / burial expenses
In all cases, hospital and medical expenses
In very serious injury cases, costs of a nurse case manager
Temporary disability benefits, which are paid until the worker reaches maximum medical improvement. These benefits are considerably less than the employee's wages and only paid for a maximum of two years.
Permanent disability benefits, which compensate the injured worker for the percentage the worker is found to be permanently disabled, according to a formula. PD benefits are never sufficient to replace lost future wages or compensation for the human suffering caused by the worker's injuries.
Vocational rehabilitation costs
In cases of very serious injury (70% or more permanent disability finding), the employee is entitled to lifetime medical expenses for the injury and to a pension.

The premise behind workers’ compensation employer liens for reimbursement is simple: injured workers do not have a right to a double recovery.

How Employers Can Seek Reimbursement

There are three separate ways the injured worker's employer can seek reimbursement for the benefits it paid to the worker from the third party:

The employer can file a lawsuit directly against third parties it thinks engaged in negligent conduct that resulted in the injuries to the worker.
The employer can intervene in the injured worker's third-party claim. This is the more common way that employers generally pursue third parties for reimbursement.
The employer can chose not to participate directly in third-party litigation and instead file a lien against the injured worker's recovery. Employers generally only follow this third avenue when they do not believe they have viable claims, because when they only lien the worker's recovery, they have no involvement or control over the third-party litigation.

The employer's right to reimbursement is not, however, absolute. If the employer is partially responsible for causing the accident in which the worker is injured, its right to reimbursement is reduced proportionately. So, if the employer is determined to be 1/3 responsible for causing the accident, it is only entitled to be reimbursed for 2/3 of the benefits it paid to the worker.

Strategies for Dealing with the Employer’s Reimbursement Claim

Litigating a third-party case requires the injured worker's attorney to anticipate potential issues that can impact a client’s final net recovery. In addition to the liability and damage issues present in every personal injury case, in third party cases the plaintiff's attorney must strategize how to deal with the employer's claim for reimbursement in a way that maximizes the injured worker's net recovery. Though these are nuanced matters of law, it’s important to understand their role in third-party injury cases.

Generally, the interests of the plaintiff (injured worker) and the employer are the same. Both want to prove the third party(ies) are liable; e.g., have engaged in negligent conduct or other wrongful conduct that caused the accident in which the worker was injured.

It is generally a good practice for the plaintiff's personal injury lawyer to reach out to the workers’ compensation carrier and suggest that they work together to prove liability of the third party defendant. This can involve sharing investigations and information about the accident. Many times in significant injury cases, where the employer has paid substantial workers’ compensation benefits, their insurer will be agreeable to sharing costs of developing the third party case.

Of course, in order to get the workers’ compensation carrier to work with the plaintiff, either an agreement needs to be made in advance regarding how much the workers’ compensation carrier will be repaid from a settlement if one can be achieved, or at least a promise by the plaintiff's lawyer that if the employer works with the plaintiff, the employer (generally meaning its insurer) will be treated fairly when it comes to settlement.

Agreements between the employer and the plaintiff are, for the most part, only important when the case is settled. If the case goes to trial and the defendant is found liable, there are complicated rules for how the employer is reimbursed. Simply speaking, if the verdict is large enough, the employer gets reimbursed off the top. If, however, the employer engaged in negligent conduct that contributed to the cause of the accident, that would proportionately reduce the employer's recovery.

In a settlement setting there are numerous ways the employer's lien can be dealt with:

The third-party defendant can make a global settlement offer (e.g., to take care of all claims) and the plaintiff and employer can agree if the offer should be accepted and how it will be allocated between them.
The third-party defendant can choose to settle only with the injured worker and leave the workers’ compensation insurer to fend for itself. Since many times the employer has not been actively involved in the third-party litigation, the employer may not be able to prove liability and thus the third-party defendant would avoid having to reimburse it. Generally, if the workers’ compensation insurer has worked with plaintiff's counsel, the plaintiff would not leave the employer in this position.
The third-party defendant can choose to settle directly with the employer, often buying the lien for pennies on the dollar, and then claim a setoff of the entire lien against the plaintiff. Again, if the employer and plaintiff have been cooperating, the employer will generally not leave the plaintiff hung out to dry like this. Indeed, a good strategy for the plaintiff's lawyer is to make an agreement up front that the workers’ compensation insurer will not sell the lien to the third party defendant.

Sometimes, the workers’ compensation case is not finalized before the parties attempt to resolve the third-party case. This raises an entirely different set of considerations.

There are two types of situations where the workers’ compensation case is not yet resolved. The first is where the issue of permanent disability has not yet been litigated. The second situation is where permanent disability has been litigated and the workers’ compensation judge has issued a Findings and Award (“F&A”), but the employer has chosen to continue to make the incremental payments ordered in the award, rather than settling for a lump sum payment based on the present-day value of the total payout.

Here are the ways unsettled workers’ compensation cases can be handled in a third-party case settlement:

In a case that is unsettled (no F&A), the injured worker and the employer can agree to a lump sum settlement as a condition of the third-party settlement. This requires processing a Compromise & Release (“C&R”) document and obtaining approval of the settlement by the workers’ compensation judge. The third-party settlement is not complete until that approval is obtained.
Where there has already been an F&A made in the workers’ compensation case, the worker and the employer can agree to settle the future payments for a lump sum amount representing the present day value. That settlement would also require a third-party C&R.
In the case of an already issued F&A, the workers’ compensation carrier may chose not to settle the comp case. Instead, the employer's lien would be settled as discussed above and the employer would be obligated to continue paying off the F&A. However, the employer would receive a credit equal to the amount of the worker's net recovery from the third-party case. Again, this is in order to preclude the worker making a double recovery.

There is one hitch, however, to the employer's credit rights in a case where the F&A is still being paid off after settlement of the third-party case. If the employer is found to have been negligent, then it cannot take advantage of the credit until it has paid workers’ compensation benefits equal to its percentage fault applied to the full value of the third-party case.

Here is an example of how it would work:

The injured worker has been paid $200,000 in worker's compensation benefits before the third-party case is settled. The worker has an F&A that requires the employer to pay another $500,000 in incremental payments. The third-party case is worth a total of $4 million. The third-party defendant has admitted fault. But, the employer's negligence was 25% of the cause of the accident, proportionately reducing the third-party defendant's liability to $3 million, which it offers to globally resolve the case.

The parties agree the workers’ compensation carrier will receive $150,000 in satisfaction of its $200,000 reimbursement lien for benefits already paid; the 25% reduction because of the employer's negligence. After fees and costs are further deducted from the employee's share of the settlement ($2,850,000), the employee recovers $1.6 million; more than enough to cover the employer's obligated future worker's compensation credits.

However, the employer does not get to use the credit until it has paid benefits equal to the amount the worker lost on the third-party case because of the employer's negligence; in this case $1 million (25% of the total value of $4 million). Since the employer has only paid $200,000 in benefits so far, it cannot claim the credit until it first pays an additional $800,000 in workers’ compensation benefits.

In this example, since the employer only owes another $500,000 in benefits, unless something happens to increase the benefits the worker is entitled to, the employer will never reach the threshold where it can take advantage of the credit.

Strategic preparation and sound arguments can go a long way when it comes to arguing down liens in subrogation negotiations or gaining leverage in third-party settlement negotiations. Only lawyers who are very experienced in handling third-party cases generally know the ins and outs sufficiently to strategize how to maximize the injured Plaintiff's recovery.

Biren Law Group has been representing victims in civil claims involving serious injury, workplace accidents, and construction accidentsfor decades. Our award-winning attorneys understand the complex interplay between third-party actions and workers’ compensation, and are available to speak with victims and counsel about potential claims and how we can help.