As we have discussed in prior blogs, third-party cases are personal injury civil suits filed by a worker who has also received workers’ compensation benefits. In these cases, the worker's employer also has a right to seek reimbursement for benefits paid to the worker from the third-party defendants.
Lawyers who handle third-party cases for an injured worker must understand the complex relationship between the workers’ compensation case and the personal injury case. They must also know how to appropriately tailor their strategies to the situation and circumstances at hand to achieve the maximum recovery possible for the client.
Here is a refresher on the basic factors involved in third-party cases:
- A worker injured on the job has a right to collect workers’ compensation benefits. Workers’ compensation is a no-fault system; if the worker is hurt on the job he / she is entitled to recover WC benefits no matter how the injury occurred.
- Workers’ compensation benefits are per statutory scheme. They are significantly less than can be recovered in a civil suit.
- A worker who is injured on the job and who collects workers’ compensation benefits also has a right to sue third parties, meaning people or entities other than the worker's employer or co-workers. In order to recover damages in the civil suit, the worker must prove the third party(ies) engaged in wrongful conduct that caused or contributed to the cause of the worker's injuries.
- The worker's employer also has a right to seek reimbursement for workers’ compensation benefits paid to or on behalf of the worker from the third parties. The employed can pursue reimbursement by filing a separate lawsuit against third parties, intervening in the employee's lawsuit (by far the most common scenario), or filing a lien against the worker's recovery.
- If the employer or co-workers engaged in negligent conduct that contributed to the cause of the incident in which the worker was injured, offsets occur.
- The employer's right to recover is reduced by the percentage the employer is found to have caused the incident / injuries.
- The worker's recovery of non-economic (general) damages (pain and suffering) is reduced by the percentage of fault attributable to the employer, as under California law a defendant is only liable for the share of the general damages it caused.
- The worker's economic damages (medical expenses, loss of earnings, etc.) are not affected by the employer's negligence, as under California law a defendant who is found liable for any percentage of fault is jointly and severally liable for all economic damages.
Here is an example of how this rule works:
If a worker is awarded $1 million damages comprised of $500,000 general damages and $500,000 economic damages, and the employer is found to be 25% liable: The general damages award is reduced by 25% to $375,000; the economic damages remain at $500,000. The total award against the defendant is reduced to $875,000.
Procedures & Strategies in Third-Party Cases
Because of the complex relationship between workers’ compensation and third-party claims, an attorney handling third-party cases must know the unique procedural requirements involved, the strategies to maximize the injured worker’s recovery, and how their approach can be tailored for the worker’s benefit at various stages and under various circumstances.
This includes the duty to notify the employer of any third-party action and the duty to notify the employer of a settlement:
- Notice of Third-Party Case to the Employer: California Labor Code § 3853 requires the injured worker to notify the employer if a third-party suit is filed. Thus, the attorney should serve a Notice of Action on the employer and workers’ compensation carrier immediately after filing suit. This will generally prompt the employer or insurer to intervene, but sometimes they lose track of the case and this can provide a tremendous benefit to the employee later during settlement discussions. Although there is no statutory requirement for doing so, it can be prudent for plaintiffs’ attorneys to inform employers when their negligence and fault is at issue.
- Notice of Settlement to the Employer: California Labor Code § 3860 provides that any settlement of a third-party case is not binding unless the employer is given notice of the settlement and an opportunity to recover its expenses. Generally this is not an issue as the employer with a viable subrogation claim will have intervened in the case. If the employer has not intervened or filed a lien, it is usually because they recognize their recovery would be defeated by employer negligence, and while they would have a technical right to pursue their recovery, the reality is they almost assuredly will not; they are unlikely to react to the notice of settlement.
Resolving a Third-Party Case via Compromise and Release (C&R)
In most third-party cases, the employee has already settled the workers’ compensation case before there are settlement discussions in the civil suit. On occasion, the workers’ compensation case is still open and ongoing. Some cases may involve a Findings and Award (F&A) in favor of the worker where the employer, rather than settling the award for a lump sum, pays the award over the employee’s lifetime.
Attorneys handling third-party claims must critically evaluate the circumstances at hand and determine whether a C&R is in the best interests of the worker. This is because strategies and ramifications of settlements will differ:
- Where the employer is paying out the F&A and there is no employer negligence, it is generally beneficial to try and negotiate a third-party Compromise & Release (C&R), with the employer contributing additional money to the settlement, so that the worker recovers more than the civil suit defendant(s) is paying. This gives the worker a larger net recovery and ends the worker's involvement in litigation.
- Where the employer is paying out the F&A and there is employer negligence, it is generally beneficial to settle with the defendant but leave the workers’ compensation case open and then challenge the employer's right to a credit; see our prior blog for more information about employer credit issues. This can result in the worker not only getting paid full damages on the third-party case, but also being able to continue receiving workers’ compensation benefits. This is particularly true where the employer is liable under workers’ compensation for lifetime medical expenses and payment of a lifetime pension.
Dealing with a Workers’ Compensation Carrier Who Wants an Unfair Portion of the Third-Party Settlement
Many times, the workers’ compensation carrier is working hand-in-hand with the Plaintiff (injured worker) in the third-party case and is willing to compromise the subrogation claim as necessary to bring about a fair resolution of the civil suit. Other times, the employer / insurance carrier is demanding an unfair portion of a proposed settlement.
In those circumstances, the strategy to follow differs depending on the circumstances. For instance:
- Where the employer has intervened in the third party case and there is no employer negligence: In most cases, the employer has not actively participated in the third-party case, even if they intervened. The best strategy to deal with a recalcitrant employer is to threaten to settle around the workers’ comp lien, which is effective because the WC insurer will not want to spend the money or take the risk of litigating the case alone. If the threat does not resolve the impasse, then try to negotiate with the third-party defendant to actually settle around the WC lien. If the defendant is concerned about resolving the WC claim and does not believe the employer can actually prove the case on its own, the defendant may be willing to do this.
- Where the employer has intervened in the third-party case and there is employer negligence: In this case, if the defendant is unwilling to settle around the employer, the best strategy is to negotiate a settlement of the third-party case and take responsibility for defending the employer's action for subrogation. If necessary to make the deal fly, agree to hold some amount of money in trust and a mechanism for litigating the issue of employer negligence.
- In any case where a global settlement cannot be achieved, a good strategy is to negotiate with the third-party defendant to specify in the settlement documentation that most of the money paid is for general damages leaving as little as possible for economic damages, which would then be reduced by the percentage of employer fault.
Determining how a third-party claim will impact a workers’ compensation case is a crucially important consideration that requires plaintiffs’ attorneys to reflect on what a reasonable net recovery looks like after potential reimbursement claims and employer fault are accounted for, and how a case could progress if a claim requires coordination with a workers’ compensation attorney.
At Biren Law Group, our attorneys represent injured workers across Southern California in complex workplace injury and subrogation matters. We are available to discuss potential claims with workers and counsel during a confidential consultation. Contact us to speak with a lawyer.