What is a “Workers Comp Holiday?” And “Does the Workers Comp Insurance Company have an IOU on my lawsuit?”
When an injured worker settles her 3rd party liability (negligence lawsuit), but the state workers compensation claim remains open (unsettled), it is often described as thought the WC insurance carrier gets a “holiday” from having to pay for any further benefits, until such time as the disabled employee uses up their “NET RECOVERY” from the settlement of their personal injury case.
If the workers’ compensation claim is not settled at the same time as the personal injury case, following the settlement of the third-party case, the workers’ compensation carrier typically will file an Application with the Virginia Workers’ Compensation Commission to suspend all benefits, meaning medical bills, lost wages, medications, travel, and other benefits.
The effect on workers’ compensation benefits after settlement or a verdict in a personal injury case is often misunderstood. When a personal injury case settles or is tried to a verdict, the injured party is required to pay back a portion of the workers’ compensation lien. A “lien” is a legal “IOU.”. However, many personal injury attorneys may forget that it also creates a reduction or cessation of future compensation benefits.
WHAT HAPPENS TO THE WORKERS’ COMPENSATION CLAIM WHEN THE PERSONAL INJURY CASE SETTLES OR IS TRIED TO A VERDICT
A. The Workers Comp “IOU.”
As lawyer Landau’s best subject is “show & tell,” & he often will use objects to explain legal concepts, showing the math in a situation where an injured worker has BOTH a workers comp claim AND a third party negligence case is helpful. Assume ABRAMS LANDAU client Pip Plaintiff settled her on the job car crash case for $300,000, and the workers compensation insurance company had paid for $150,000 in medical bills, lost time from work, medications, transportation to and from the hospital, doctors and physical therapists. Under sate law, the workers compensation insurance company, on behalf of Pip’s employer, is entitled to get its money back. However, Doug Landau has never paid back a Workers Comp insurance company 100%. The law allows him to deduct money for the benefit of his client.
From the $400,000 comes the one-third contingency fee. Case expenses are also deducted. If $35,000 was spent on: filing the lawsuit, service of the papers on the Defendant, medical records, Depositions, doctor’s reports, medical illustrations, Subpoenas, exhibits, transcripts and witness fees would be taken out, as they represent an interest-free loan to the injured client.
- GROSS personal injury settlement = $400,000.00
- Legal fee = $133,333.32
- Advanced Costs = $15,000.00
- = $42% Recovery Costs
As the costs and attorney fees are 42% of the settlement, the ABRAMS LANDAU team will approach the workers compensation carrier to reduce their lien (“IOU”) by their pro-rata share of the injured worker’s attorney’s fee and expenses. That means the $150,000 lien is reduced by 42%. In this example, Pip’s “IOU” gets cut from $150,000.00 to $87,000.00, a huge savings to Pip, who will now get $146,666.68, free of state, local and federal taxation, in addition tot he $150,000.00 in Workers Comp benefits already received.
B. “PAYING the PIPER” (Post-3rd party settlement or verdict payback)
If you thought the above distribution was complex, hold on to your hat. AFTER Pip settles her personal injury case, even though the workers comp claim is still open (unsettled), the Workers Comp insurance company gets a “holiday.” The insurance company lawyers will usually seek to have what is called a “Suspension Order” entered by the Virginia Workers Compensation Commission. What this means is that comp benefits are suspended until the claimant’s counsel seeks additional benefits. Hence the term “holiday.”
The workers comp insurer does not have to pay any more comp benefits until such time as the injured worker provides proof of entitlement to further benefits. These can be in the form of: medical bills, wage loss evidence, transportation receipts, prescription medication fulfillment, permanency ratings, etc.
The Virginia Workers’ Compensation Commission will enter an Order setting forth what the “recovery ratio” will be in order for Pip’s benefits to continue after the personal injury settlement. In other words, how much will Pip get going forward?
The “recovery ratio” is how much the injured worker can expect to get towards their comp related medical care, wage loss, medications, permanency and other benefits. In order to get future benefits, the injured worker Pip will need to file a claim with the Virginia Workers’ Compensation Commission (“VWC”) pursuant to Va. Code §65.2-313. The VWC will enter an order setting forth the ratio at which the injured worker’s future comp benefits are paid.
Not only is the workers’ comp carrier entitled to their portion of the third party negligence settlement, but if there is any recovery by the injured plaintiff Pip in excess of the workers’ compensation lien, this “gross” recovery will also be credited against future compensation benefits. This is because the Courts are leery of any “double recovery.” THe Courts view an injured victim as being eligible for “one full recovery.” If the injured worker could keep 100% of their comp benefits AND also 100% of their verdict or 3rd party lawsuit settlement, that might be more than “one full recovery.” So, the courts and the legislators have fashioned these rules that ensure that the employers and their insurers get paid back and that the injured victims of workplace accidents caused by negligent, unsafe third parties, only receive “one full recovery.” Balancing this is the fact that lawyer Landau points out to clients when they have to pay back the workers comp carrier’s “IOU;” they are paying back this interest-free loan at perhaps 45-55-65 cents on the dollar, which is a better deal than they would get from any bank or credit union.
The “gross” recovery, is the amount of the original workers’ compensation lien (“IOU”), subtracted from the total personal injury recovery, which leaves the gross recovery. For injured plaintiff Pip, the total gross personal injury settlement was $400,000.00 and the workers comp “IOU” was $150,000.00 at the time the negligence case resolution. The negligence settlement was far in excess of the workers comp lien. (by a quarter of a million dollars). So, Plaintiff Pip has to keep paying the comp carrier until she exhausts that amount.
C. Statutory Procedure for Future Workers Comp Payments
The workers comp statute language then sets forth the process by which future comp benefits ar eto be paid. The Virginia statute states, that the comp insurance company is to pay “a percentage of each future entitlement as it is submitted equal to the ratio of the total of attorney’s fees and costs compared to the total third-party recovery.” “As it is submitted,” in reality means that the injured worker submits bills, receipts and other evidence, QUARTERLY, and THEN the workers comp insurer reviews them, audits them, figures out how they may have to pay under the Virginia Workers Compensation Medical Fee Schedule (“VWCMFS”), and if they can find grounds to challenge, delay or deny, they will do so. Then, the workers comp carrier may have to fork over 42 cents on the dollar, until such time as injured worker Pip “exhausts” her “net” recovery. The VWC will enter an Order stating that Pip’s weekly check and medical benefits will be paid quarterly at a reduced rate.
So, if Pip was getting an $800.00/week comp check, based upon pre-injury wages of $1,200.00, she will now get $336.00 (42%, pursuant to the “Suspension Order). However, Pip will be credited with “paying back the IOU” at the $800.00 rate. Likewise, if Pip has to get an MRI and she pays $2,300.00 for the diagnostic testing, the WC carrier only has to pay $966.00 (42%), but the injured worker gets “credit” for the $2,300. This continues until the $250,000.00 “Gross recovery” (Total personal injury settlement MINUS the total pre-settlement Workers Comp Lien) is exhausted. Once the “Gross 3rd party recovery is used in this fashion, injured worker Pip goes back on 100% workers comp benefits, just like BEFORE he 3rd party settlement.
Injured worker Pip may start to receive 100% of her workers’ comp benefits if she obtains an Order of the VWC. While here have been ABRAMS LANDAU clients who have exhausted their “Gross 3rd party recovery,” most do not and the process is an accounting nightmare. In addition, the injured worker has to FRONT THE MONEY for their care, medications, transportation, etc. Since many injured workers, after they settle their 3rd party negligence cases, are loathe to spend money on the front end for doctors’ appointments, PT, meds or transport, the workers comp insurers recognize that the exposure, or their likelihood of having to pay anything going forward, drops dramatically. Plus, the injured worker is not getting the weekly or bi-weekly “reminder” about their case, getting “off work” slips, and other correspondence from the VWC, such that they are not thinking on a regular basis about their workplace injury case procedure. In reality, many injured workers cannot follow the rules of this complicated process after their personal injury case settles (or verdict is paid). These WC claimants cannot schedule or pay for their medical treatment “out of pocket,” provide receipts, and submit the required evidence on a quarterly basis for reimbursement at the reduced rate by the workers’ compensation insurer.
Evidence tends to suggest that the majority of injured workers might have a better outcome if they can settle their Worker’s Compensation claim at the same time that they either resolve, or receive a verdict in a third-party negligence lawsuit. This saves everyone from the accounting nightmare, as well as protracted litigation as to the postRecovery ratios, reasonable of the bills, appropriate medical bill, reimbursement and exhaustion of the gross third-party settlement amount. If you, or someone you care about, is considering the settlement of their personal injury case, and they also have a workers comp claim, and there are questions about the applicable laws, give us a call at 703-796-9555 or e-mail us at: FrontDesk@LandauLawShop.com