Increasing the Odds: Strategies for Mediation as a Workers’ Compensation Subrogator
Mediation as a subrogator is like playing a two-player game as a third player. The game is designed for two players, and those two players don’t understand how you fit into their game and they don’t really want you there. Your pieces to the game, however, hold a lot of power if you place yourself in the right position for mediation.
BY CHALSIE KELLER AND KELSEY DANIEL
As a subrogator, you will likely be ignored for a good portion of the mediation. This is because the mediator tends to focus on the Injured Worker and Defendants as the parties to the case, thinking they are the most important players to the mediation. The mediator usually has a plan to come to you at the end of the negotiation with the singular goal of reducing your recovery as much as possible to get a settlement within the bounds of the “deal” they have already worked on with the Injured Worker and Defendants. Even worse in some cases, the mediator may view you as another source of money to contribute to the overall settlement.
The solution to controlling the outcome of the game, is to place yourself in the best position to negotiate with all parties. This usually translates to “leave your options open” and “get creative.”
DIFFERENT TYPES OF SETTLEMENT
Subrogation is a unique situation in the civil arena because the goal may not always be to get as much money from the settlement possible. Sound crazy? The other parties to the case may think so too. Approaching mediation from this perspective can give you great leverage to getting the best overall recovery for the claim.
A settlement where the Subrogator takes less direct money in reimbursement does not translate to an overall lower recovery. Although it seems contradictory, the opposite is often true. A settlement where the Subrogator agrees to recover less direct money from the overall settlement in exchange for a stipulation to credit, or a third party compromise and release, can be a much better bargain than receiving a larger amount of direct money from the settlement. When the underlying claim is left open, the carrier faces high exposure that an even exceed the estimates at the time of settlement. Closing off a “bleeding” claim can be much more beneficial than cash in hand.
To use this leverage to your best advantage, knowledge of the status of the workers’ compensation claim, and the different settlement options available to you based on that status, are key. Different states have different rules governing each of these options, but most allow a carrier to obtain some sort of credit that makes all of these strategies options for the Subrogator.
There are three major types of settlement options:
- Direct Cash Only;
- Direct Cash with Claim Credit/Closure, and;
- Claim Credit/Closure Only
Let’s use the following example to better understand each option and how they would play out in this scenario:
The worker’s compensation claim total estimated cost is $90,000. $70,000 in benefits have been paid to date. $20,000 in benefits are in reserves for the permanent disability rating and future medical care Identified by the Panel Qualified Medical Evaluator. The civil subrogation team has discovered the third party civil defendants have a $100,000 policy available to recover from in the subrogation case. Both the injured worker and the Subrogator have filed suits and made a claim for the $100,000 policy.
Direct Cash Only
Direct Cash Only settlement simply means your subrogation recovery value only comes from whatever money you are able to recover from the third party subrogation case. This kind of settlement agreement generally arises when there is insufficient insurance available to recover from the Defendant. When this occurs, you have three people fighting for the same money (the Subrogator, the Injured Worker and the Injured Worker’s Plaintiff Attorney).
In our scenario, the Defendant’s policy limits were $100,000. If the defendant’s offer their full policy for settlement, each party (the Subrogator, the Injured Worker and the Injured Worker’s Plaintiff Attorney) could equally splitch the $100,000 giving them cach $33.333.33. Your recovery from this scenario is the value of the direct cash you are settling for, $33,333,33. You can choose this option for settlement with both an open or closed Workers’ compensation claim.
However, if your claim is closed, your recovery ends there. Insufficient funds from a Defendant, usually due to low policy limits, is a prime example of why it is so important to communicate with the Subro Team (claims representative, subrogation representative, subrogation attorney) to keep the underlying workers compensation claim open.
If the claim is open, you can petition your State’s appeals board for credit for the net recovery of the injured worker (jurisdiction permitting) and recover an additional $33,333.33 in claim credit. This credit is required to be spent on the claim, with itemized proof by the injured worker, before the carrier is obligated to pay our benefits under the claim. This effectually closes the claim in many scenarios.
If you have an agreeable injured worker and Plaintiff attorney, you can choose the next option for settlement, Direct Cash with Claim Credit Closure.
Common Fund Doctrine and Interpleader
As an additional element of concern with low policy limit cases, and in states where the Subrogator has a first right of recovery, the Subrogator’s damages alone will often exceed the policy limits, or will at least exceed what the plaintiff attorney thinks you are entitled to recover.
An argument that will likely be made is that the Plaintiff attorney put forth more effort and therefore procured the settlement. This contention, when applicable in your jurisdiction, is commonly referred to as the Common Fund Doctrine. The doctrine stands for the premise that where one creates a fund to which others have a claim, that one is entitled to first recover their costs of litigation and attorney’s fees. It is an equitable principal designed to prevent unjust enrichment. Some states have codified this principal. Although this may be the farthest thing from the truth with regards to your case, if your jurisdiction permits it, the plaintiff attorney will assert it.
Some ways to prepare to counter this argument are to file your action early as opposed to on the statute of limitations date, serve your Defendants timely, propound targeted discovery, set depositions, attend all depositions, site inspections and hearings, communicate with the defense so when the policy is tendered or an offer of settlement is made it is addressed to you, and communicate with the plaintiff attorney so he knows up front you are there to recover for your client and he is not entitled to assert the common fund doctrine.
Another consideration is the potential for an interpleader action. If the parties reach an impasse on distribution of the settlement funds, the Defendants can interplead the funds. These additional litigation costs should be considered when deciding whether to pursue your full rights of recovery or settle for a little less.
Direct Cash with Claim Credit/Closure
This type of settlement is complex because you are negotiating both the civil subrogation case and the worker’s compensation claim simultaneously by using one as leverage on the other. In many cases, approaching settlement talks with this strategy will result in both money back on the civil subrogation case, and closure of the worker’s compensation claim with no new money paid out by the carrier for that closure. Because the benefit from the credit or closure is only available if the worker’s compensation claim is open, this type of settlement is only an option if the worker’s compensation claim is open at the time of the settlement.
In our scenario, the amount of direct cash back to each party is still 1/3 of the $100,000 policy settlement ($33,333.33). In addition, the Subrogator is receiving a credit against the Injured Worker’s workers’ compensation claim in the amount of the net recovery the Injured Worker received from the third party case, $33,333.33. Since the remaining anticipated cost of the workers’ compensation claim is $20,000, this credit may essentially close the workers’ compensation claim without causing the carrier to put forth any new money for the closure. Therefore, your recovery from this scenario is the value of the direct cash you are settling
for. $33.333.33 plus the savings to the carrier for the credit they would have otherwise have had to have paid, $20,000. This gives you a total recovery value of $53,333.33.
This type of settlement strategy does not generally work in states like Georgia, Massachusetts, Mondana, Oklahoma, North Carolina, West Virginia and Wyoming where the statute prohibits or limits a carrier’s recovery right involving credit. Check your jurisdiction to see how this apply to your state.
Claim Credit/Closure Only
This type of settlement is usually best if the anticipated exposure of the workers compensation claim far exceeds the potential third party civil settlement. In this type of settlement, the carrier agrees to waive the direct cash back portion of its recovery in exchange for the injured worker closing all, or a portion, of their workers’ compensation claim. Depending on your jurisdiction, this closure is done via a stipulation to credit, or a third party compromise and release. For this reason, this settlement is only available if the workers’ compensation claim is still open.
In our scenario, the workers’ compensation claim has a reserved anticipated cost of $20,000, but let’s add that you believe the Injured Worker may be preparing to amend the claim to add additional body parts. The expense in diagnosis and litigation of these new issues could far surpass the $33.333.33 you are receiving from the direct cash settlement from the $100,000 policy settlement. For this reason, negotiating with the Injured Worker to close their worker’s compensation claim, with credit or third party compromise and release, in exchange for your agreement to waive your subrogation in the form of direct cash back may be the best recovery value due to the anticipated amount of savings you will receive by closing the claim.
Settling Around the Injured Worker/Selling the “Lien”
In some cases, the Injured Worker and Plaintiff Attorney are not willing to work with the Subrogator on a global settlement of the workers compensation claim and civil subrogation cases. In these instances your best recovery may result from selling your “Lien” to the Defendants directly. As a Subrogator, you have damages independent of the Injured Worker. Thus, you have the power to waive or sell your lien as you see fit.
Many jurisdictions, like California. Minnesota and Texas allow the Subrogator to sell/assign their lien” to the civil Defendant. This is a powerful tool that is not often used. A fallback to this option may be a less than full recovery of your claim paid to date as the Defendant will want a deal as incentive to buy your lien.
Selling your lien to the Defendants is a powerful bargaining tool because once purchased, the Defendants have the right to dessert the full value of your lien against the Injured Worker’s claim for damages. The specifics of whether you assign the amount of your lien at the time of your settlement with the Defendants, or at the time of the Defendants Settlement with the Injured Worker, is your choice that also provides you additional bargaining power
In our scenario, $70,000 has been paid in benefits to date. The anticipated value of the lien, however, is $90,000 total. If you decide to settle around the Injured Worker with the Defendants and sell the lien (for whatever amount you negotiate with them), the Defendants have purchased the right to assert a credit against the Injured Worker’s civil claim in the amount of cither $70,000 or $90.000, depending on how you structure your agreement In this scenario, you could sell your lien to the Defendants for $34,000 and the resulting credit right the Defendants receive could wipe out a big portion of the Injured Worker’s settlement.
There are many reasons to at least consider selling your lien to the Defendants, including: if the Injured Worker and Plaintiff Attorney are not being cooperative and settlement is unlikely without the sale of the lien; if there are big issues with proving liability or medical causation in the act or if there are big employer negligence issues that could significantly impact your recovery.
If the workers’ compensation claim is still open, it is important to note that the civil case should still be monitored through resolution for any met recovery to the Injured Worker as the carrier can still petition the WCAB for credit.
COMMUNICATION AND SETTLEMENT AUTHORITY
Subrogation Cases have many moving parts that are handled by different people. In order to get your best settlement recovery, the most important part of your settlement mediation plan should be communication with the “Subro Team.”
All cases and claims are different, so which settlement plan is best for your case is going to depend on a lot of factors that different people in your Subro Team will have knowledge of. The claims representative may not be aware of the limitations involved with closing the workers compensation claim before closure of the civil subrogation case; the subrogation representative may not be aware of big claim issue that makes turning down an early opportunity to settle too good to pass up, and; the subrogation attorney may not be aware of a long standing relationship with the employer and carrier. These are just a few examples of the many different factors that should go into deciding which settlement strategy is best.
Because there are so many factors to consider, you are going to need open communication with those that are involved in the different aspects of the workers’ compensation claim and subrogation case. This generally includes the handling claims examiner/representative, the subrogation examiner/representative, the workers’ compensation defense attorney, the subrogation attorney and the employer.
Finally, always remember mediation of a subrogation case involves so many moving pieces that your preferred form of settlement may not be an option once all the issues are laid out at mediation. In order to keep the negotiations moving, and avoid the the chance of getting settled around, always discuss all the potential options with your subrogation attorney and provide the needed authority for them to react to the moving pieces and changing circumstances so they can negotiate the best possible settlement for the case/claim at the mediation.
CHALSIE KELLER is an associate with Siegel, Moreno & Stettler in San Diego. She represents plaintiffs throughout California in Workers’ Compensation Subrogation, Property Subrogation and Personal Injury. Courtroom aside, find Chalsie at ComicCon or singing to Hamilton in her car.
KELSEY MEZZANATTO DANIEL is an associate with Siegel, Moreno & Stettler, APC. Ms. Daniel specializes in pursuing Workers’ Compensation Insurance Subrogation and Defense. Since joining the firm in 2013, she has become a client favorite with her extensive knowledge base and tenacity in recovering subrogation claims.
A version of this article originally appeared in Subrogator Magazine.