Timing Negotiations Where Claimant Has a Third Party Action

Clients frequently seek advice on how to resolve workers’ compensation claims. Often, as attorneys, we are in the best position to negotiate a settlement when we have some leverage on issues impacting a claimant’s entitlement to benefits, such as cases where labor market attachment has been raised or a client’s consultant is of the impression that a claimant has no further causally related disability. In short, timing is everything in negotiations.

Timing is also important when attempting to resolve a workers’ compensation claim where the carrier has a lien arising out of a third party action. Under Workers’ Compensation Law Section 29(1), where a claimant entitled to benefits under the Workers’ Compensation Law commences an action to seek a remedy against a third party, the carrier shall have a lien on the proceeds of any recovery from the third party action, whether by judgment, settlement or otherwise. Thus, Section 29 of the Workers’ Compensation Law grants carriers the right to assert a lien in order to avoid a double recovery by a claimant for the same injury.

However, the carrier is not entitled to recover the full amount of its lien for indemnity benefits and medical expenses paid in the workers’ compensation claim. In Kelly v. State Ins. Fund, the court held that when a workers’ compensation claimant recovers damages in a third party action, the workers’ compensation carrier’s lien should be offset by its equitable share of litigation costs incurred by the claimant in the third party action. Simply put, since the carrier derives a benefit from the proceeds of the third party action, it must contribute its fair share of the costs associated with the litigation of the third party action.

Thus, when it comes time to allocate the funds associated with a third party action, the upfront amount recoverable by the carrier is a percentage of its lien rather than the full amount. Furthermore, under the holding in Burns v. Varriale, where a claimant is classified with a permanent partial disability, the court held that the carrier should be required to periodically pay its equitable share of the attorney’s fees and costs of litigation associated with the third party action.

When settlement of a third party action is being considered, that is often a great time for a carrier to use that settlement to its advantage to resolve the workers’ compensation claim. However, this is where the timing issue comes in. Carriers are sometimes mistaken that a claimant may not settle a third party action without their consent. The law provides that a claimant may settle a third party action by obtaining written consent from the carrier, but this is not the claimant’s only option.

Workers’ Compensation Law Section 29(5) sets forth that a claimant must obtain the written approval of the insurance carrier prior to any settlement of a third party action, unless the claimant seeks a compromise order from a justice of the court in which the third party action was pending. Therefore, a claimant may petition the court where the third party action was filed to approve a proposed settlement without the consent of the workers’ compensation carrier.

If the ultimate goal of a carrier is to resolve the claim via a full and final settlement, and the claimant is seeking approval to settle his or her third party action, then that is an ideal time to aggressively pursue negotiations. Claimants are often discouraged when they learn that their recovery from a third party action is going to be substantially reduced by the amount owed to the carrier pursuant to its lien under Section 29. Thus, we have found that if a carrier is willing to reduce the amount of its lien recovery in exchange for the claimant agreeing to settle his or her workers’ compensation claim, then the claimant may be willing to settle for a more favorable figure than if the carrier first waits for the third party action to be resolved.

Again, since the claimant has the option to petition the court to approve a proposed settlement of a third party action, the workers’ compensation carrier cannot simply prevent the claimant from settling that action by withholding consent. Thus, when the parties are discussing settlement of a third party action, that is an opportune time to aggressively pursue a global resolution of both the lien and the workers ’ compensation claim for a reasonable value. By agreeing to reduce the lien recovery by a reasonable figure, thereby putting a greater lump sum in the claimant’s pocket at the time of the settlement of the third party action, a carrier can often realize a long-term savings as compared to its future exposure associated with the claim. After all, if a claimant receives a lump sum recovery from a third party settlement without a resolution of the workers’ compensation claim, then he or she will be in a better financial position and likely less inclined to settle the workers’ compensation claim after the fact.

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