Future Credit Reduced By Health Insurance Payments
On April 1, 2015, the South Dakota Supreme Court declared for the first time that medical expenses paid by health insurance plans, and not by an injured employee personally, can be applied to the reduce the workers’ compensation carrier’s statutory future offset as established in S.D.C.L. § 62-4-38.
In South Dakota, § 62-4-38 governs the calculation and operation of the workers’ compensation carrier’s future credit (referred to as an “offset” in South Dakota) which results from an excess recovery (i.e., any money left over after attorney’s fees and litigation costs are reimbursed and the workers’ compensation lien is reimbursed) by the employee from a negligent third party. It provides for an “offset” against any future workers’ compensation benefits whenever a third-party recovery is realized by an injured worker, and reads as follows:
62-4-38. Right of action when third person is liable–Election by employee–Offset of recovered damages.
If an injury for which compensation is payable under this title has been sustained under circumstances creating in some other person than the employer a legal liability to pay damages in respect thereto, the injured employee may, at the employee’s option, either claim compensation or proceed at law against such other person to recover damages or proceed against both the employer and such other person. However, in the event the injured employee recovers any like damages from such other person, the recovered damages shall be an offset against any workers’ compensation which the employee would otherwise have been entitled to receive. S.D.C.L. § 62-4-38.
When the recovery is effected by the subrogated carrier in its own name or in the name of the injured employee, § 62-4-40 provides as follows:
62-4-40. Recovery by employer from third party–Excess held for employee.
If compensation is awarded under this title, the employer having paid the compensation, or having become liable therefore may collect in his own name or that of the injured employee, or his personal representative, if deceased, from any other person against whom legal liability for damage exists, the amount of such liability and shall hold for the benefit of the injured employee or his personal representative, if deceased, the amount of damages collected in excess of the amount of compensation paid such employee or his representative, less the proportionate necessary and reasonable expense of collecting the same, which expenses may include an attorney’s fee not in excess of thirty-five percent of damages so collected, and shall be subject finally to the approval of the department. S.D.C.L. § 62-4-40 (2001).
S.D.C.L. § 62-4-38 (2001) provides that damages recovered in a third-party action are considered an offset against any workers’ compensation benefits which the employee would otherwise have been entitled to receive. Section 62-4-38 provides as follows:
However, in the event the injured employee bears any ‘like damages’ from such other person, the recovered damages shall be an offset against any workers’ compensation which the employee would otherwise have been entitled to receive.
Some plaintiffs’ attorneys have attempted to argue that the “like damages” verbiage in the statute disallows any offset whatsoever where “like damages” have not been recovered, and constitutes authority for them to gerrymander settlements. South Dakota courts, however, have stated that it is inconsistent to state that past benefits paid the carrier are entitled to a dollar-for-dollar reimbursement, but that future benefits are credited only to the extent they constitute “like damages.” Therefore, the carrier, having paid compensation benefits or having been liable, may collect in its own name or the name of the injured employee, the amount of such liability, and shall hold for the benefit of the injured worker the amount of damages collected in excess of the amount of compensation paid to the employee, less the proportion of necessary and reasonable expenses of collecting same, which expenses may include an attorney’s fee not in excess of 35% of the collected damages. Zoss v. Dakota Truck Underwriters, 575 N.W.2d 258 (S.D. 1998) (determined to be the equivalent of “future benefits”). Any settlement is subject to approval of the Department. Id.
The amount of any third-party recovery remaining after following the formula set forth in the preceding section will constitute the carrier’s future credit. This amount will be divided by the worker’s monthly benefit amount to determine the number of months of future workers’ compensation benefits for which the carrier will continue to have a lien, at least with regard to indemnity benefits. During this time, the carrier will cease the monthly payments. After the number of months of indemnity payments provided for have elapsed, the carrier will again be responsible for making these indemnity payments. If the worker dies before the carrier is required to recommence making payments, the carrier may make a claim against the worker’s estate for any excess payment of expenses and attorney’s fees made. Likewise, if remarriage cuts short indemnity payments, the carrier will have a similar claim for reimbursement of overpayment of expenses and attorney’s fees. Id. The parties are free to agree otherwise, as they may see fit.
Milbrandt v. Bibb’s, Inc.
On April 1, 2015, in a case of first impression, the South Dakota Supreme Court in Milbrandt v. Bibb’s, Inc., 2015 WL 1500686 (S.D. 2015) held that money received by the employee from collateral sources (e.g., other insurance companies or health plans) reduces the statutory offset under § 62-4-38. In Milbrandt, the employee settled a third-party claim and reimbursed the lien. The remaining amount of his settlement, after costs, $74,000, was determined to be “like damages” for which the carrier took an offset against future medical expenses. The employee’s health insurer later paid some related medical expenses and the carrier refused to allow these amounts to reduce the offset. An administrative law judge and the circuit court held that those amounts reduced the workers’ compensation carrier’s offset, and the carrier appealed. The Supreme Court affirmed, declaring that these amounts do count toward reducing the offset, even though the employee did not personally pay them out of the third-party recovery. Therefore, monies paid by health insurance, and not the employee personally, can be applied to reduce the offset in § 62-4-38.
This decision turned away the carrier’s position that, since the employee did not personally have to pay for the additional medical expenses, these amounts would not reduce the carrier’s future offset total, and the employee was still liable for the first $74,000. The Supreme Court disagreed, stating that it did not matter who paid for the surgery under state law, the carrier is still responsible to pay any additional workers’ compensation benefits. The Court concluded that if the employee’s health insurance plan had paid these bills, they would have been paid by workers’ compensation, so this should not cause the carrier to pay less because the health insurance company paid them instead. Essentially, this was a benefit to the carrier, not a detriment.
If you should have any questions regarding this article or subrogation in general, please contact Gary Wickert at firstname.lastname@example.org