SJC Rules That Workers’ Compensation Lien Does Not Apply To Pain And Suffering

The Massachusetts Supreme Judicial Court recently held that a workers’ compensation insurer’s lien does not extend to damages allocated to an employee’s pain and suffering as part of a third party settlement. The decision in DiCarlo vs. Suffolk Construction. Co, Inc., 473 Mass. 624 (2016), which reviewed lower court rulings in two cases (DiCarlo v. Suffolk Construction Co., Inc., 86 Mass. App. Ct. 589 (2014), and Martin v. Angelini Plastering, Inc., 86 Mass. App. Ct. 1122 (2014)(table)), is significant because it gives trial court judges greater latitude in approving reasonably apportioned settlements of third party claims that stem from work-related accidents.

Under Massachusetts law, employees who receive workers' compensation benefits may not sue their employers for claims arising from work-related injuries. See G.L. c. 152, § 24.   In theory, the employees benefit because they do not have to prove negligence to recover benefits.  They merely have to show that their injuries arose in and out of the course of their employment.  The tradeoff for this benefit, however, is that there are limitations on their recovery.  The benefits allowed under the “No Fault” statutory scheme typically cover lost wages, past medical bills and the costs of necessary future medical treatment.  The sums paid by workers’ compensation insurers to injured employees DO NOT include any compensation for pain and suffering. 

Employees who have collected benefits may, however, file claims against third parties for damages arising from their work-related accidents.  See G.L. c. 152, §§ 15, 24.  When an employee recovers damages from a third party, the workers' compensation insurer is entitled to a statutory lien on the recovery in the amount that the insurer paid to the employee.  See G.L. c. 152, § 15.  The statute states that the insurer is entitled to "the gross sum received in payment for the injury." G.L. c. 152, § 15.

In DiCarlo and Martin, two employees were injured in construction accidents and received workers’ compensation benefits from the same insurer.  The employees filed negligence actions against allegedly culpable third parties and negotiated settlements with them.  The settlements included payments for pain and suffering, and the employees claimed that the sums allocated for those damages were not subject to the statutory lien.  

The workers’ compensation insurer objected at the settlement approval hearings in both cases and demanded the full settlement proceeds.  Relying on an expansive interpretation of the word “injury”, the insurer asserted that the gross sum to which it was entitled included the entire injury and, hence, the entire amount of the settlement proceeds.  The employees argued that term "injury" as used in the statute should be construed narrowly to mean only those injuries for which workers' compensation benefits are payable, thereby excluding pain and suffering.  

The Superior Court judges who heard the cases reached opposite results.  Both decisions were appealed, and the Appeals Court ruled in favor of the employees.  The Supreme Judicial Court accepted both cases for further appellate review. 

The specific question before the Court was whether a workers' compensation insurer’s lien extends to pain and suffering damages recovered by an injured employee from a third-party tortfeasor.   The Court held that it does not.  To be consistent with the legislative intent behind the statute, the injury must be one for which compensation is payable in order for the insurer to have a right to reimbursement.  Reasoning that the insurer did not compensate the employees for their pain and suffering, the Court concluded that the insurer cannot seek "reimbursement" from damages paid for those harms.  

This decision will make it easier to settle third-party claims where a workers’ compensation insurer takes an obstinate position on the sums to which it is entitled.  Citing DiCarlo was particularly helpful in resolving a recent third-party claim where the injury was significant and the potential exposure was large, but the plaintiff’s liability case was weak.  The workers’ compensation insurer had paid substantial benefits due to the significant injury, and was thwarting efforts to resolve the matter by demanding a large payment to resolve its lien.  Designating reasonable portions of the settlement to pain and suffering and loss of consortium – which are not compensable under the workers’ compensation statute – lessened the insurers’ leverage to demand the full lien.  In the end, the carrier compromised because it knew that DiCarlo provides judges with greater flexibility to approve settlements where the lien is not paid in full.  The key was that the apportioned sums were reasonable based upon the facts developed in the case.

The DiCarlo decision will not deprive an insurer of its reimbursement rights where an employee and a third-party defendant reach a settlement that would "stack the deck" against the insurer by inappropriately allocating the bulk of damages to pain and suffering.  By requiring that all settlements be approvedafter a hearing at which the insurer has a right to participate,  G.L. c. 152, § 15 precludes unreasonable attempts to allocate sums in a way that prevents the insurers from receiving fair reimbursement for damages that they had been statutorily obligated to pay.

If you have any questions about this recent development we welcome you to contact us.  

 

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