Plan For The Best, Expect The Worst, And Prepare To Be Surprised
Thomas Reid once said, “There is no greater impediment to the advancement of knowledge than the ambiguity of words.” Nowhere is this truism as important than in the settlement of third-party lawsuits involving workers’ compensation carriers’ subrogation liens and future credits. For lack of as little as proper punctuation, significant subrogation interests can be lost forever. It is important that workers’ compensation carriers be excruciatingly detailed and specific with regard to the effect of a tort settlement on both the reimbursement and future credit rights of the carrier.
Some years ago a workers’ compensation carrier client came to me with a problem that had developed following the settlement of a large personal injury case. Our client was not represented and failed to attend the two day mediation, despite a seven-figure workers’ compensation lien. The employee had been rendered a quadriplegic in a foundry accident involving a large steel coil which fell on him. Life care plans pegged future medical care at nearly $10 million. The employee filed suit and at the ensuing mediation, his attorney repeatedly contacted our client by telephone to resolve the workers’ compensation lien. A seven-figure settlement was reached and, despite fairly clear liability, our client accepted less than 50% of its $2 million lien and signed the mediation memorandum which simply stated, “[Client] accepts $660,000 in satisfaction of its workers’ compensation subrogation interests.” The funding of the settlement took nearly five months, and following several court hearings and the resolution of disputes between the employee and guardian ad litem for the two young children involved, my client received a check for $440,000 and a letter explaining how future medical benefit payments should be made. Unfortunately, during the five months it took to fund the settlement, the employee had undergone several complicated surgeries resulting in an additional $350,000 in medical expenses. The plaintiff’s attorney claimed one-third of the lien reimbursement amount as an attorney’s fee, and noted that the $440,000 settlement of our client’s “subrogation interest” included the waiver of any right to a future credit, because it was not spelled out in the settlement agreement.
All too often we see files after our clients have made major, yet avoidable, mistakes in the negotiation and settlement of their subrogation interests. What our client failed to do when settling its subrogation interest was specify the precise terms under which the settlement was made. It saved attorney’s fees by not having subrogation counsel present at the mediation, but as a result, it failed to specify that they were not waiving or abandoning its right to a multi-million dollar future credit which would have otherwise arisen under the law of the state involved. It also failed to specify that the unnecessarily-generous lien reduction was “net” to them, and would not be reduced by any claim for attorneys’ fees by the plaintiff’s attorney. It also failed to specify that the negotiated lien reimbursement was as of the date of the settlement, and failed to specify how any additional benefit payments made between the date of the settlement and the date of the funding of the settlement would be handled.
Most of the problems we encounter stem from a carrier’s less than complete understanding of all of the law applicable to our rights of subrogation. Our busy minds tend to condense subrogation into neat little categories, charts, and simple rules, which are often betrayed by our legal enemies who have taken the time to research and understand the nuances and legal details of a particular set of facts and the law applicable to it. It is important to be a step ahead of the other side when it comes to understanding the details of subrogation law and the application of that law to your particular case.
Unfortunately, we see examples of these simple, yet tremendously expensive oversights quite regularly. On December 8, 2014, Federal Judge William Conley, sitting in the Western District of Wisconsin, signed an order in the case of Middlesex Insurance Company v. Rodger, 2014 WL 6908711 (W.D. Wis. 2014). In that case, Sarah Rodger was injured in a traffic accident in Arkansas for her Wisconsin employer. Rodger’s workers’ compensation carrier, Middlesex Insurance Company (A Sentry Company), paid $284,021 in benefits. Rodger and Middlesex purported to enter into a settlement agreement with regard to its subrogation rights for $217,500, but failed to specify precisely what was being settled. A September 12, 2014 e-mail from either Middlesex or its subrogation counsel accepting plaintiff’s offer simply read, “This lien settlement is without prejudice to and shall not affect Ms. Rodger’s open Workers’ Compensation claim beyond settlement of the lien against the 3rd party settlement.” As you might expect, Middlesex later claimed that this meant that the settlement only concerned the current past lien and preserved its right to a future credit, while Rodger claimed that the $217,500 was for release of both past and future reimbursement claims (i.e., there was a waiver of the right to a future credit). Middlesex was required to file a declaratory judgment in Wisconsin federal court.
Judge Conley held that the subrogation settlement was ambiguous and that it was clear that there was no “meeting of the minds” at the time the agreement was entered into. Fortunately for Middlesex, the federal judge ruled that the agreement was void and unenforceable, and denied Rodger’s Motion to Dismiss. It remains to be seen how the court will handle the reimbursement rights of Middlesex in that case.
The rule of thumb for settling workers’ compensation subrogation liens is simple. Be excruciatingly detailed with regard to all aspects of precisely what is being settled and what isn’t. Spell out carefully the terms of the settlement, and give examples in the settlement correspondence if the subject matter is unclear. Specify clearly that the amount being accepted in reimbursement is for the past lien only. Set forth that it is gross to the carrier, and that no attorney’s fees and/or expenses will be deducted from that amount prior to payment to the carrier. Be clear as to precisely what happens if the settlement is delayed. Will the lien increase with each payment made by the carrier until the settlement is funded and/or approved by the court or Commission? If not, should any future medical bills be forwarded to the employee or his/her attorney for payment during the interim? Settlements can get hung up in litigation for years, and if these matters are not spelled out clearly, it can turn into a very expensive lesson.
It is often best to have subrogation counsel present at mediations (or at a minimum, available by phone) when large sums are involved. Prudence need not be expensive, but it must be employed. An exercise I have always advised my clients to engage in is to assume that the mediator, the judge, the plaintiff, and the plaintiff’s attorney are all conspiring in secret to defeat your lien, your credit, and all of your reimbursement and subrogation rights. At every stage of the negotiation, choose your words carefully and parse the words used by the other side. Imagine that every letter, every e-mail, and every phone call you make will be blown up as a 3’ x 5’ poster board and given an exhibit number. Be suspicious. Assume the worst and negotiate for the best. Henry David Thoreau once said, “We are always paid for our suspicion by finding what we suspect.” However, it is certainly better to find what we suspect than to never have suspected it at all.
If you should have any questions regarding this article or workers’ compensation subrogation in general, please contact [email protected].