After settlement or judgment of a third-party civil case, the employer is entitled to a credit based on the employee’s net recovery in the civil action.

Peter V. Fitzpatrick

The easy part

The defense attorney in the workers’ compensation case can simply contact the applicant’s attorney or civil attorney and request a breakdown of the third-party civil settlement. The breakdown should include attorney’s fees, costs and net recovery to applicant. Then a petition for credit is filed with the board requesting credit based upon the net recovery of applicant/plaintiff in the civil action.

The hard part: employer negligence

One of the biggest problem areas in asserting a petition for credit is the issue of employer negligence. The applicable law is Arbaugh vs. Procter & Gamble Manufacturing Co. This provides a formula to determine the recovery amount to the carrier.

First, determine the value of the third-party case (individual applicant/plaintiff) plus the carrier’s case. There are many ways to do this (amount of settlement, medical costs, testimony of experts in civil case).

Second, determine the percentage of employer negligence. Third, multiply the employer negligence times the case value. This figure becomes the “threshold.”

Example: civil case is worth $100,000. The employer negligence is 25%. The carrier cannot collect any money below their payout of $25,000 (which is 25% of $100,000). This avoids a double recovery for a negligent employer. In other words, defense can collect only money spent above $25,000.

Burden of proof

To establish the credit, a mini-civil trial is conducted at the board, something workers' compensation judges do not often do.

Defendant has the burden of showing there has been a settlement between the applicant and a third-party tortfeasor entitling it to a credit, and the comparative negligence of the injured employee or the third-party tortfeasor.

The applicant has the burden of establishing the total amount of his damages and
the employer’s negligence.

Conclusion

The easy part is obtaining applicant’s/plaintiff’s net recovery information. The hard part is conducting a mini-civil trial at the board to determine the amount of the credit.

Peter Fitzpatrick is a partner at Bradford & Barthel. This entry from Bradford & Barthel's blog appears with permission.