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DTCI: Recovery of workers' comp in third-party action

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DTCI-moss-libby-valosBecause a good portion of my practice involves defending employers in workers’ compensation claims, I am often consulted by my partners and clients regarding the recovery of workers’ compensation liens in liability cases. An overview of the statutory rights of an employer/carrier to recover on such liens is often a good refresher as many attorneys tend to overlook this important aspect when seeking to settle their liability case.

Indiana Code 22-3-2-13 governs an employer/carrier’s right to reimbursement of workers’ compensation benefits paid to an employee from the proceeds of any settlement or judgment resulting from a third-party action. Under the statute, the employer/carrier has a lien on those proceeds. In addition, the statute provides that when an employee settles with a third party, the employer/carrier’s obligation to pay future compensation benefits is terminated. Because the statute provides that the employer/carrier has a lien, there are no steps required in order to perfect a lien. However, good practice dictates notifying all counsel involved in a third-party action concerning the amount of workers’ compensation benefits and contact information for the individual responsible for negotiating a lien.

When an employer/carrier pays out statutory benefits, including medical and TTD benefits, those amounts are recoverable from a judgment or settlement obtained by the employee against a third party. The employer/carrier’s lien, however, will be reduced by one-fourth for the attorney fees if recovered without suit and by one-third if recovered with suit. In addition, the employer/carrier shall pay the pro rata share of costs associated with the employee bringing the suit. This would include deposition fees, witness fees (i.e., experts), filing fees and so forth. If the employer/carrier elects to waive its right to recover on its lien, then it is not responsible for sharing in the cost of bringing the action. Likewise, any recovery on the lien can also be reduced by the comparative fault of the employee, which would reduce his ultimate recovery against the third party. See I.C. 34-51-2-19.

The Indiana Supreme Court decided the effect of failing to obtain consent from an employer/carrier to settle a third-party liability case in Smith v. Champion Trucking Co., Inc., 925 N.E.2d 362 (Ind. 2010). In Smith, the employee was involved in an auto accident and sustained injury. The employer moved to dismiss the workers’ compensation action arguing that the employee’s settlement with the driver of the other vehicle, before resolution of the workers’ compensation claim, barred his right to further benefits. The Indiana Supreme Court agreed with the employer. It noted that even when the amount of settlement recovered in the third-party liability suit is less than the potential recovery of workers’ compensation benefits, it does not alter the statutory language requiring the employer/carrier’s consent to settlement of the third-party liability suit, nor does it serve to allow an employee to continue receiving workers’ compensation benefits.

Following on the heels of Smith, the Indiana Court of Appeals was called upon to determine whether an employer/carrier must reduce its workers’ compensation lien in the same proportion that the employee’s full recovery was reduced in the third-party liability suit. Kornelik v. Mittal Steel USA, Inc., 952 N.E.2d 320 (Ind. Ct. App. 2011). In Kornelik, the employee filed a motion to adjudicate the employer/carrier’s lien on the third-party liability settlement and for declaratory judgment. The Indiana Court of Appeals decided that the employer/carrier was required to reduce its lien by one-third for attorney fees and its pro rata share of costs. However, the employer/carrier was not required to reduce its lien in the same proportion that the recovery in the third-party liability suit was reduced because the employee failed to obtain the employer’s consent. Without the written consent of the employer, a settlement of the third-party liability case is valid only if the employer/carrier is protected in full by court order.

As a result of these decisions, an employee can be barred from receiving continued workers’ compensation benefits. He may also be obligated to pay all of the recovery in the third-party liability settlement, less attorney fees and costs, to the employer/carrier if consent to settlement is not obtained. Such a dire result is certainly not in the best interest of the employee. As a best practice, attorneys involved in the third-party liability suit should always contact the employer/carrier before entering into settlement negotiations and ensure that the workers’ compensation lien is protected in full. Furthermore, obtaining the written consent of the employer/carrier can prevent future litigation regarding the amount of recovery on the workers’ compensation lien.•

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Libby Valos Moss is a partner in the Indianapolis office of Kightlinger & Gray and is a member of the DTCI Board of Directors. The opinions expressed in this article are those of the author.

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  1. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  2. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  3. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  4. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

  5. I am compelled to announce that I am not posting under any Smith monikers here. That said, the post below does have a certain ring to it that sounds familiar to me: http://www.catholicnewworld.com/cnwonline/2014/0907/cardinal.aspx

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