Workers’ compensation subrogation is one of the few areas of insurance recovery in which a carrier can have a perfectly valid statutory right to reimbursement and still walk away empty-handed.

Katherine A. Sandoval

In many states, the law imposes procedural requirements that can be just as important as the underlying right to recover. A missed deadline, an improperly perfected lien, an unanticipated settlement, an overlooked assignment or a failure to intervene can turn a substantial reimbursement opportunity into an expensive lesson. A recently published California appellate decision illustrates just how unforgiving these requirements can be.

In Slamer v. Southern California Permanente Medical Group, the California Court of Appeal reversed an order requiring an injured employee to reimburse her employer for workers’ compensation benefits paid. The problem was not that the employer lacked a statutory reimbursement interest. Rather, the employer failed to take the procedural steps necessary to obtain reimbursement through the employee’s lawsuit before that lawsuit was dismissed.

A lien filed but not fully protected

Jennifer Slamer suffered disabling respiratory injuries in 2016 after exposure to a disinfectant manufactured by Ecolab. Her employer, Southern California Permanente Medical Group, paid workers’ compensation benefits while Slamer pursued a third-party lawsuit against Ecolab. During the litigation, SCPMG filed several notices of lien reflecting its increasing compensation expenditures.

In April 2023, Slamer settled with Ecolab. She dismissed her lawsuit with prejudice on June 1, 2023, without resolving SCPMG’s reimbursement claim. When Slamer subsequently refused to reimburse the employer, SCPMG filed a motion seeking payment in February 2024. The trial court granted the motion, but the Court of Appeal reversed.

The appellate court concluded that the trial court lacked jurisdiction to order reimbursement after the underlying action had been dismissed. Although SCPMG had filed notices of lien, it had not obtained an order allowing and fixing its lien before the litigation ended. Its subsequent efforts to invoke settlement-enforcement and judgment-enforcement procedures were unsuccessful.

The distinction is critical. Notice of a lien is not necessarily the same thing as legally perfecting and enforcing it. The appellate court expressly declined to decide whether SCPMG had any other available remedy, leaving the employer to confront the possibility of additional litigation simply to pursue reimbursement that might have been addressed before dismissal.

The danger of settling around the carrier

The Slamer decision also highlights another recurring danger: the employee and third-party defendant resolving their lawsuit without adequately protecting the workers’ compensation carrier. California Labor Code § 3859(b)(1) generally permits an employee to settle a third-party claim without the employer’s consent, subject to the employer’s statutory reimbursement rights. Sections 3853, 3858 and 3860 contain additional provisions addressing notice and protection of those interests. Nevertheless, statutory protections do not necessarily eliminate the practical difficulties created when settlement proceeds are distributed and the lawsuit disappears before the carrier’s reimbursement claim is resolved.

California courts have recognized potential remedies when an employee settles without providing the required notice. In Abdala v. Aziz, the court addressed an employer’s remedies after a settlement and satisfaction of judgment without adequate protection of its lien. Depending on the circumstances, separate claims against the employee or other remedies may remain available. But pursuing money after it has been distributed is considerably different from protecting the lien while the proceeds remain available.

A carrier that merely sends a lien letter and waits for the parties to report a settlement risks discovering that the case has been resolved, the funds disbursed and its leverage substantially diminished. By that point, obtaining reimbursement may require separate litigation, assuming an effective remedy remains available.

The future credit can be worth more than the lien

Reimbursement of benefits already paid is only half the equation. In many workers’ compensation claims, the right to a credit against future benefits can represent an even greater financial interest.

California Labor Code §§ 3858 and 3861 generally address the employer’s right to reduce future compensation obligations following an employee’s third-party recovery, subject to statutory requirements and exceptions. The value of that credit can be substantial in claims involving ongoing medical treatment, permanent disability or other continuing benefits.

Protecting the lien without considering the future credit can therefore leave significant money on the table. Settlement negotiations must address not only how much the carrier receives immediately, but also whether a future credit exists, how it will be calculated and whether settlement documents inadvertently compromise it.

The importance of understanding statutory exceptions is underscored by California’s 2026 amendments affecting certain peace officers and firefighters. Under specified circumstances, Labor Code § 3852(b) restricts the employer’s reimbursement rights, while §§ 3858 and 3861 eliminate the corresponding future credit. These provisions illustrate why the nature of the worker's employment, available liability coverage and applicable statutory framework must be evaluated before a carrier assumes that its ordinary reimbursement and credit rights apply.

Why passive lien handling is increasingly dangerous

Workers’ compensation carriers often attempt to protect their interests through lien notices, correspondence with plaintiff’s counsel and periodic requests for litigation updates. For small claims with cooperative parties, that approach may be economically reasonable. But the larger the lien and future exposure, the more dangerous passive monitoring becomes.

California law provides several potential avenues for protecting reimbursement rights, including filing a notice of lien, intervening in the employee’s lawsuit or pursuing an independent third-party action. Each approach carries different procedural requirements, costs and risks. Selecting the wrong approach — or failing to act before a critical procedural event — can have consequences disproportionate to the amount saved by avoiding legal involvement.

The same broader problem arises in other jurisdictions, although the governing requirements differ considerably. Subrogation statutes may create rights, but those rights do not always enforce themselves. Carriers must understand when intervention is necessary, when a lien must be perfected, what notice is required, whether settlement consent is needed and how future credits are preserved.

The economics of workers’ compensation subrogation deserve particular attention. Avoiding the cost of legal representation may appear prudent until a six-figure lien is lost because a lawsuit was dismissed, settlement proceeds were distributed  or a statutory procedure was overlooked.

The lesson of Slamer

The lesson is not that every workers’ compensation lien requires immediate litigation. Rather, every significant lien deserves an informed decision about how it will be protected. That decision should account for the amount paid, probable future exposure, the status of the third-party litigation, the possibility of employer negligence, the applicable statutory procedures and the risk of a settlement that excludes the carrier.

In substantial claims, timely involvement by experienced subrogation counsel may be the most economical way to protect both reimbursement and future-credit rights. Counsel can evaluate whether intervention or another protective measure is appropriate, monitor litigation developments, address proposed settlements and ensure that necessary action occurs while the court still has jurisdiction. Slamer is a reminder that having a lien and collecting a lien are two different things. The difference is often determined not by the merits of the carrier’s claim, but by what the carrier does before the third-party case ends.

Katherine A. Sandoval is an insurance litigation attorney and managing partner of Matthiesen, Wickert & Lehrer's California office. This blog post is reprinted with permission.