The following factual presentation in the WorkCompCentral Professional Forums concerning third party credit issues is quite frequent. We have edited the relevant portions of this Forum thread and present it here in article format because of the timeliness and import of the subject matter. The Editor wishes to thank all that have contributed to this discussion.

Facts: Applicant has a third party case and nets a recovery of $100,000. The workers' compensation claim is litigated but no orders of finality have been entered by the WCAB. The workers' compensation case includes allegations of Serious and Willful employer misconduct that have yet been adjudicated. Applicant wants medical care for his Post Surgery condition. He goes to the Treating Doctor for such further treatment but the Defense will not pay claiming the $100,000 net recovery as a credit against the workers' compensation claim.

Question: Does the WCAB have to issue an order on the credit amount before the Defense may assert the credit against the workers' compensation claim?

Answer #1:

One would start by taking a look at the two relevant statutes:

Labor Code section 3858.
After payment of litigation expenses and attorneys' fees fixed by the court pursuant to Section 3856 and payment of the employer's lien, the employer shall be relieved from the obligation to pay further compensation to or on behalf of the employee under this division up to the entire amount of the balance of the judgment, if satisfied, without any deduction. No satisfaction of such judgment in whole or in part, shall be valid without giving the employer notice and a reasonable opportunity to perfect and satisfy his lien.

Labor Code section 3861.
The appeals board is empowered to and shall allow, as a credit to the employer to be applied against his liability for compensation, such amount of any recovery by the employee for his injury, either by settlement or after judgment, as has not theretofore been applied to the payment of expenses or attorneys' fees, pursuant to the provisions of Sections 3856, 3858, and 3860 of this code, or has not been applied to reimburse the employer.

The employer's right to credit is unambiguous in the statutes. It appears the defendants certainly have a right to assert a credit without a board order. Nothing in 3861 requires the board to issue an order first, it just allows the WCAB to rule on the issue if necessary. 3858 makes this even clearer in that it states the employer shall be relieved of further obligation, and does not require board approval unless attorney fees are at issue.

The more pressing question is whether the defendant's actions are reasonable in relation to Labor Code section 5814. That is, does the defendant have a reasonable medical or legal doubt as to its obligations? I think the defendant in your case can probably meet that burden despite the S & W filing. However, you can certainly argue that any reasonable person would see that the S & W pleading is accurate and incontrovertible.

However, the other thing to remember is this: Even if there is a risk in asserting a credit unilaterally, that risk is mitigated by the fact that 5814 penalties would be covered by any credit allowed. In a case your size, the employer, even if found partially negligent should still obtain a credit (a $150,000 judgment and employer negligence of 50% would require the defendant to pay $75,000 before they can assert credit. They've probable done that on a case as severe as yours). So there is no "down side" to the defendant unilaterally asserting credit, holding on to its' money, and forcing you to prove your S & W. The alternative is that they may spend the money, win the S & W, and still be out of luck since they won't be able to get the money back.

It does appear however, that you have grounds for an expedited hearing.

Answer #2:

There is case law that holds that the employer/insurance company cannot take credit until receiving an order for the credit from a Workers' Compensation Judge.

See General Reinsurance Corp. v. St. Jude Hospital, 107 Cal. App. 4th 1097; 68 CCC 591. Specifically, within that case, The Ballard Action. (The St. Jude case does not say we can't take credit unilaterally. It is about the contract provisions between an excess carrier and a self-insured employer. The Ballard Action is treated as an adjudicated fact that the court does not address, because no one asked them to address it. The court goes so far as to say that they are not reviewing the reasonableness of the 5814 penalty because it is not before them.) This case discusses the need for an Order from the WCAB before asserting a credit. In the Ballard case, the TPA stopped benefits based on an assumed credit, without an Order, and became subject to 5814 penalties. (Unfortunately, the TPA's changed twice and the mistake was perpetuated by all three of them). Now, taking into account that this was a few months ago, it was penalties on the entire species of benefits. I believe the penalties were eventually settled for somewhere in the range of 1.5 million dollars for 7 separate and distinct penalties.

Remember, the employer does not get any credit until it's expenditures exceed the jury's finding of (employer's proportionate share of liability) x (employee's total damages). For example, if the jury found employer's responsibility is 50% fault, and jury finding of employee's damages was $150,000, employer gets no credit until it has paid out $75,000.

What, no jury findings? Then those issues go to the WCJ.

The best discussion you'll ever find on all the above issues is in the CEB book by Paul Peyrat titled "California Workers' Damages Practice," which I'm sure can be found at your local law library. If your case is as large and possibly serious as you imply, then the time invested could be well worth it.

Answer 3:

One of the cases is Rohrback v. WCAB (1983), 144 Cal. App. 3d 896; 1983 Cal. App. LEXIS 1881; 193 Cal. Rptr. 558, where an award of permanent disability included credit for temporary disability in an amount to be adjusted by the parties; employers' unilateral taking of credit for temporary disability when amount had not been agreed upon was found to be unreasonable delay because there was no "genuine doubt from a legal standpoint as to its liability for benefits." (citing Kerley v. Workmen's Comp. App. Bd., supra, 4 Cal.3d 223, 230)

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