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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. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

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