Personal Injury Actions Effect on Workers' Compensation Payments

A worker injured by the negligence of a third party, that is, someone not associated with the employer, may sue the third-party. When the injured worker receives a cash settlement from the third-party case, the Workers' Compensation insurance company may have a lien on those proceeds. The recovery lien is reduced to reflect the cost of the injured workers' litigation and offsets such as No-Fault payments (Section 29 of the Workers' Compensation Law).

The largest share of the cost of litigation (COL) is attorney fees followed by expert cost and cost of materials such as medical records and court fees. Typically, the cost of litigation is between 33% and 40% of the recovery or settlement amount.

Prior to accepting the settlement, the injured worker must obtain the consent of the Workers' Compensation insurance company. If consent is not obtained, the Workers' Compensation insurance company likely will be absolved from any further liability.

An example is a Workers' Compensation Case with a Third-party action that produces a settlement of $30,000.00 with an attorney fee of one-third or $10,000.00 with no other cost. Now, if the Workers' Compensation insurance company had paid $15,000 in medical and lost wages, they would assert a lien of $15,000.00. The lien would be reduced by $5,000.00 as the cost of litigation was one-third (33.33%) of the recovery. The injured worker would “Net” $10,000.00 as shown below from the third-party action in addition to the $15,000.00 of Workers Compensation benefits:

$15,000,00 Comp lien (Medical and lost wage benefits paid)

-$ 5,000.00 COL

$10,000.00 Comp lien

$30,000.00 Settlement

-$10,000.00 Atty fees

-$10,000.00 Comp lien

$10,000.00 Net to client

The Carrier would also have a holiday/exemption for future payments to the injured worker to the extent of net proceeds, which in the example is $10,000.00. Otherwise, the injured worker would have a double recovery. Many commonly refer to this situation as the "Kelly" or "Burns" payments; the names come from the cases that set the legal precedent.

"Kelly" involved a case involving the death of the injured worker. The court determined that, because of the certainty of ongoing payments to the widow, the Workers' Compensation insurance company's lien is reduced by the present-day value of that further benefit. Again, the amount depends on the exact percentage of the COL (note a death case would not involve future medical).

"Burns" involved an injured worker with an ongoing permanent partial disability payment. As it is uncertain how long the payments would continue, the exact amount of the lien cannot be calculated. So, the Workers' Compensation insurance company was required to continue making payments to the injured worker equal to their share of the cost of litigation as a percentage of the continued benefit. Thus, the term "Burns payments." The Workers' Compensation Board determines the amount of the payment, again using the cost of litigation formula. Further, an injured worker is eligible to have a percentage of future medical costs reimbursed upon proof of payment.

As "Burns" payments reflect a share of the Workers' Compensation carrier's recovery, once that recovery or "holiday" from payments ends, the "Burns" payments also end.

It is also significant that at the end of the Workers' Compensation insurance company's “holiday” an injured worker may be entitled to further lost wage and medical benefits. This is referred to as “deficiency compensation." To determine if this applies, calculations are made taking into account all the benefits paid as well as the cost that have been incurred.

Personal Injury Lawyers and Workers' Compensation Lawyers “All Under One Roof.”

The attorneys at MCV Law have significant experience with handling all aspects of your case. We understand the interplay between person injury actions, motor vehicle accidents, Social Security, and Workers' Compensation claims. And we know how to maximize the overall benefits for you.

We believe it is important to hire lawyers that understand and handle more than one area of law and will represent and protect you in each of these areas. Should you have questions or concerns regarding any of these areas, we invite you to contact us to learn how we can help you get your life back.

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