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So You Want To Settle-Now What?: Worker’s Compensation Liens and Med Pay Subrogation “Liens” Part 1

November 17, 2017

Worker’s compensation liens and medical payments subrogation claims are two of the most common hurdles to clear before finalizing settlements.  So common, in fact, that they are often taken for granted.  But each have the capacity to stand between your client’s (and your) money.  Paying attention to the details, and planning ahead, are essential.

 

THE SUBROGATION REDUCTION STATUTE

 

The beginning of any discussion about the reduction of an insurance lien or claim (there is a difference) in Indiana should start with I.C. 34-51-2-19, the subrogation reduction statute.  But with the elimination/downsizing of local claims offices, many insurance subrogation departments/representatives may be several states away.  They may not know (or care) about the specifics of Indiana law.  Setting aside the few remaining instances where a carrier still attempts to refute that compliance with this statute is mandatory, there is still general ignorance among subro reps regarding the fact that there are THREE separate reductions in Indiana’s statute.  Most know about the usual one-third pro rata attorney fee reduction.  Some may even know about the pro rata case expense reduction.  But very few seem to be aware of the third, and usually biggest, reduction: the one requiring proportionate reduction if the claimant’s recovery is reduced for any reason.  Because of this, it saves time to assume that you will have to make a formal, written, request for a reduction of any subro lien or claim.  Further, it is a good idea to attach a copy of the statute itself, with the key parts highlighted:

 

IC 34-51-2-19

Liens or claims to diminish in same proportion as claimant's

recovery is diminished

Sec. 19. If a subrogation claim or other lien or claim that arose out

of the payment of medical expenses or other benefits exists in respect

to a claim for personal injuries or death and the claimant's recovery

is diminished:

(1) by comparative fault; or

(2) by reason of the uncollectibility of the full value of the

claim for personal injuries or death resulting from limited

liability insurance or from any other cause;

the lien or claim shall be diminished in the same proportion as the

claimant's recovery is diminished. The party holding the lien or claim

shall bear a pro rata share of the claimant's attorney's fees and

litigation expenses.

As added by P.L.1-1998, SEC.47.

[emphasis added].

 

Sadly, it is probably best to assume ignorance, and over-explain.  Your written reduction letter should make it easy on the subro adjuster to understand the law, and the facts justifying your request [see Exhibit A].  This type of reduction letter is basically the same regardless of whether the claim stems from health insurance, med pay, or worker’s compensation benefits. Some subro adjusters will still not “get it”, or perhaps even refuse to believe that the law really mandates reductions beyond one third.  Sometimes it is necessary to litigate a lien or claim, or at least threaten to do so to get a fair deal.  Forcing lien reductions is typically much quicker, less risky and less expensive than trying the liability case to a jury.

 

WORKER’S COMPENSATION LIENS

 

Although work comp benefits in Indiana are not generous, they provide a valuable safety net for injured workers.  If employees are injured in the scope of employment, they are entitled to have their medical bills paid, be paid for some of their wage loss, receive some compensation for permanent partial impairment, and possibly other benefits.

 

1.  General tips regarding work comp liens

 

a. Audit the amount claimed: Get a printout showing each charge, provider, and

date of service.  Some inappropriate costs, such as the cost of the nurse the carrier hires to follow the claimant’s case, are sometimes improperly included.

 

b.  Make sure the client is really done treating before you settle with the third party.  Settlement of the third party case extinguishes the duty of the work comp carrier to continue benefits.

 

c.  Try to get a total waiver of the subrogation claim.  In large cases, the work comp carrier may be willing to completely waive the subro claim for past benefits if doing so will result in a liability settlement.  This is because the liability settlement extinguishes the duty to pay future work comp benefits.  Death and catastrophic injury cases can leave the work comp carrier exposed to paying substantial future benefits.

 

d.  Work Comp cannot subrogate against the client’s own UM or UIM coverage.  I.C. 22-3-2-13 allows the worker’s compensation insurance carrier to assert a claim against proceeds due to an employee as a result of a compensable injury or death under the worker’s compensation act from “some other person legally liable to pay those damages.”

 

In Walkup v. Wabash National Corporation, 702 N.E.2d 713 (Ind. 1998), the Indiana Supreme Court addressed the issue of whether an employer was entitled to be reimbursed for medical expenses it had paid out of an employee’s recovery for personal injuries under the uninsured motorist coverage contained in the employer’s auto insurance policy.  In that case, the employee, David Walkup, was injured in an automobile collision while driving his employer’s vehicle in the course of his employment.  Walkup’s employer, Wabash National Corporation, self-insured its worker’s compensation obligation and paid $8,599 in work comp benefits to Walkup.  Wabash asserted a lien against the proceeds of Walkup’s settlement of his uninsured motorist claim and sued Walkup to enforce the lien.  The trial court granted summary judgment in favor of Wabash.

 

Wabash based its claim for subrogation on I.C. 22-3-2-13, which provides that when an injury or death for which work comp benefits are payable is sustained under circumstances creating “in some other person than the employer and not in the same employ a legal liability to pay damages in respect thereto” and the employee enters into a settlement with or obtains a judgment against the “other person,” the employer is entitled to reimbursement (less its pro rata share of the costs and expenses of asserting the third party claim).  On appeal, Walkup argued that the “other person” and “third party” referred to in I.C. 22-3-2-13 is the tortfeasor and not an uninsured motorist carrier.  The Supreme Court disagreed and held that “. . . an employer’s uninsured motorist carrier is an ‘other person’ under Indiana Code §22-3-2-13.”  702 N.E.2d 713, 7151.  However, the Supreme Court also stated that “[w]e express no opinion as to this analysis if the uninsured motorist coverage is purchased by the employee.” Id2.

 

The Indiana Court of Appeals addressed that issue in Pinkerton’s Inc. v. Ferguson, 824 N.E.2d 789 (Ind. Ct. App.2005), trans denied, and held that “. . . ‘some other person’ under the Worker’s Compensation Act does not include an employee-paid uninsured motorist policy.”  824 N.E.2d 789, 792.

2.  Recent sources of litigation where work comp liens exist

Two problems with work comp liens seem to come up again and again in recent years.

 

a. The Work Comp carrier won't agree that its lien is controlled by I.C. 34-51-2-19. This is a “bright line” issue, but, astoundingly, work comp carriers and their counsel still seem to be arguing on occasion that they need not reduce per the lien reduction statute. It is not known whether this is being done out of genuine ignorance versus a willful attempt to “pull a fast one” on plaintiffs. Work comp liens are subject to reduction based on the statute, and no quarter should be given to this argument.

 

Although the original Comparative Fault Act of 1984 exempted work comp liens, that exception was deleted effective July 1, 1990. Department of Public Welfare v. Couch, 605 N.E.2d 156, 168 (Ind. 1992). The rule since is simple: the proportionate reduction specified in I.C. 34-51-2-19 applies to all recoveries, whether before or after trial, whether by judgment or settlement. Id.

 

It is vital to remember, however, that compliance with I.C. 22-3-2-13, the work comp lien statute, is still mandatory. I.C. 22-3-2-13 calls for a pro rata fee reduction of worker’s compensation liens (25% pre-suit, one-third after), as well as a reduction for pro rata costs and expenses. But getting the “full value” reduction is trickier, and is addressed below.

 

b.  The Work Comp carrier refuses to “consent” to a liability settlement.

The last paragraph of I.C. 22-3-2-13 states that a third party settlement cannot be valid unless (1) the worker’s compensation carrier gives its “consent”, or (2) where the employer’s lien is “protected by court order.”  If you settle the liability case without consent or a court order, you will waive your right to seek anything more than the pro rata fee and expense reductions.  

 

I.C. 22-3-2-13 has been interpreted to mean that the pro rata attorney fee and case expense reductions of a worker’s compensation lien are automatic, and will apply even if the plaintiff settles with the third party without the “consent” of the worker’s compensation carrier or a court order.  Kornelik v. Mittal Steel USA, Inc., 952 N.E.2d 320, 328 (Ind. Ct. App. 2011).  However, if the plaintiff wishes to preserve the right to argue for a proportional reduction under I.C. 34-51-2-19, he or she must first get consent from the work comp carrier or a court order.  Id. at 327.

 

Sometimes a work comp carrier will refuse to grant the “consent” required under I.C. 22-3-2-13.  This could be based on the fear that the plaintiff’s decision to settle will lead to a reduced recovery on the work comp lien.  It could simply be based on ignorance.  But some carriers, seeing little risk to themselves, still refuse consent with the hope that the case will get settled anyway, and the lien repayment will be the “full” two-thirds.  In that situation, an order from the court “protecting” the lien is necessary.  A little work is required, although not usually much expense because you already have the tools you need at hand.  Specially, you must file a motion to get a court order “protecting” the lien, a/k/a “Kornelik motion” [see Exhibit B, attached].

 

 

1.  Make the Work Comp carrier a party

 

If the work comp carrier has intervened, it is a party already and is immediately subject to the jurisdiction of the trial court.  If not, try to get the agreement of the carrier to become a party so that it may speak to its own lien interest. Barring this (which is normal if it is stubborn enough to refuse consent), you will need to implead the carrier into your lawsuit under T.R. 19 or T.R. 20.  Success comes more quickly after the carrier is forced to become a party to the lawsuit.  This step alone may cause the carrier to settle, since most lienholders do not want to incur expenses.

 

2.  File a Kornelik motion

 

DO NOT FINALIZE ANY THIRD PARTY SETTLEMENT UNTIL YOU GET AN ORDER FROM THE COURT “PROTECTING” THE LIEN.  

 

File a Kornelik motion [see Exhibit B].  The order granting this motion will protect your right to seek a lien reimbursement well below two-thirds.  While the term “fully indemnified or protected by court order” is not defined by I.C. 22-3-2-13, case law has found that this term means that the lienholder’s interests are fully protected without the need for further litigation.  In Koval v. Simon Telelect, Inc., 693 N.E.2d 1299 (Ind. 1998), the court examined this part of the statute, and noted that:

 

In the absence of written consent, a settlement is valid only if the employer is “indemnified or protected by court order.” As a substitute for the consent requirement, this language is directed to the same purpose: making sure the employer is not deprived of its recovery. An employer will be protected if, for example, the monies owed are set aside for the employer by court order in an escrow account or a similar arrangement.

Id. at 1309.

 

Therefore, getting the Kornelik order “protects” the work comp carrier, and allows you to finish your liability settlement.  You just have to hold the designated amount (usually no more than two-thirds of the full lien amount) in your trust account pending the resolution of the final lien repayment dispute.  

 

Many judges will not have encountered this.  Educate the Court on the “simple” procedure that will take place after the motion is granted:

1.  Plaintiffs will accept the offer from defendants, and release them;

 

2.  Plaintiffs’ counsel will keep two-thirds of the lien total in the trust account to “protect” the lien;

 

3.  Plaintiffs will file a “Motion to Determine Lien”, and the work comp carrier will have a fair chance to respond;

 

4.  Don’t miss any chance to emphasize to the court that this extra work is the fault of the Work Comp carrier for not cooperating.

 

c.  File a Motion to Determine the Lien

After getting the Kornelik Order, file a “Motion to Determine Lien” [see Exhibit C].  This asks the judge to compute the “total damages that would fully and fairly compensate for the claimant’s resulting injuries and losses, irrespective of liability issues or judgment collectibility.” Department of Public Welfare v. Couch, 605 N.E.2d 156, 168 (Ind. 1992).  Affidavits are recommended so the judge has admissible evidence upon which to determine “full value”.  The judge will then perform the reduction math described in Couch to compute the final reimbursement amount.  Id.

 

The Work Comp carrier will be able to file an opposing brief, but this should do nothing other than to offer an alternative (usually much lower) number for the “full value” of the case.  That is the only topic for discussion.

 

At each stage of this “game” the Work Comp carrier may “see the light” and contact you about a reasonable settlement.  As with most lien negotiations, these entities do not want to spend money, and get more reasonable once they see they must spend some of their own.  Note that these same rules apply to governmental work comp plans, even if they are self-insured.

 

1 The Indiana Court of Appeals had previously reached the same conclusion relative to underinsured motorist coverage in Ansert Mechanical Contractors v. Ansert, 690 N.E.2d 305 (Ind. Ct. App. 1997).

2 However, a unique fact in this case was that the uninsured motorist provision in Wabash’s policy specifically excluded any costs that were covered by worker’s compensation benefits. Therefore, the Supreme Court held that Wabash was not entitled to reimbursement out of Walkup’s uninsured motorist settlement.

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