This article is adapted from Chapter 12 of my free book, The Wounded Worker: Inside the Pennsylvania Workers' Comp Maze, which you can download or obtain a paper copy by filling out the form on this page.
Should I Settle?
At some point you may need to examine whether to settle your workers’ compensation case for a lump sum and give up the right to wage loss benefits, medical coverage for your injury, or, more likely, both.
For you, letting a judge decide your case is usually an all or nothing proposition. For insurers, losing a particular case has much less significance because they expect to lose a certain percentage of their cases and can easily handle the financial cost of losing one case. As a result, insurers often play hardball in negotiations.
Workers’ compensation claims are not like personal injury cases. If you can’t settle a personal injury case, you can just say, “Don’t want to settle? Fine. We’ll just let the jury settle it.” That can’t be done in a workers’ compensation case. There is no jury to decide the value of your claim, and no judge has the power to force either party to agree.
An employer or its insurance company has the right to refuse to negotiate, continue paying workers’ compensation benefits, and use whatever legal rights it has to limit the amount they pay you. Government employers or companies that pay claims out-of-pocket (“self-insureds”) often waste enormous amounts of money paying people wage-replacement benefits because they are penny-wise and pound-foolish. Rather than settle a claim, they pay lawyers to fight these cases and never get around to making a settlement offer that would be attractive to an injured worker and cheaper for them. For many who have been seriously injured, however, the insurer will try to settle, which means you must understand how your lawyer evaluates your case.
What is the “Value” of Your Case?
Over one hundred years ago, the Pennsylvania General Assembly passed the Pennsylvania Workers’ Compensation Act, fashioning a compromise between labor and management in which workers exchanged the right to pursue negligence claims against their employers for the right to receive disability benefits regardless of whether anyone was at fault for causing an injury. Unfortunately, the benefits you receive under the Act are relatively meager. There are special benefits available to you if you lose certain body parts or lose certain functions such as eyesight or hearing. Under most circumstances, however, you will receive medical coverage for your injury and wage loss benefits that are fixed on the date of injury and will not go up. With inflation, the value of those benefits will steadily decline.
Worse still, because your benefits are fixed, you do not recover compensation for the loss of your earning potential. For example, if you ordinarily would receive wage increases of 5 percent per year but for the injury, you will lose all of those wage increases into the future. You also may not sue your employer for negligence and cannot recover for the pain, suffering and aggravation caused by your injury, though you do have the right to pursue negligence claims against parties other than your employer or co-workers. If you get a recovery for your injury as a result of a lawsuit against someone other than your employer, the insurance company has the right to get repaid for all the benefits it paid for your injury.
It’s bad enough that your benefits are fixed. Insurance companies also have the right to cut your workers’ compensation benefits based on other benefits you receive. If you start receiving Social Security retirement benefits after your injury occurs, the insurance company is entitled to reduce your wage loss benefits by an amount equal to half of your monthly benefits. If you’re receiving pension benefits from a plan that was funded by the employer for whom you were working at the time of injury, the insurance company can take a dollar for dollar credit for those benefits. If you received a severance package funded by your time-of-injury employer, the insurance company has a right to take credit for that. Your benefits will also be reduced for each dollar you receive in unemployment compensation benefits during your period of work-related disability.
The time during which you may receive wage replacement benefits is often finite. If you return to work at wages less than your pre-injury wages or a judge rules that you have an “earning power,” the insurance company must pay you wage loss benefits for a maximum of 500 weeks. After you have been disabled for about two years, employers also have the right to have you undergo a special medical examination called an "Impairment Rating Evaluation" (IRE) in which a doctor examines you to determine the extent of your disability under special guidelines of the American Medical Association. Unless you are more than 50% disabled under these rules, you may receive no more than 500 weeks of additional wage loss benefits. As a practical matter, you must be profoundly disabled to qualify for additional benefits.
Does Fighting in Court Affect Settlement?
If your right to receive benefits is in dispute and you have a workers’ compensation case pending, the single most important factor affecting the value of your case may be the reputation of a particular judge for being pro-employer or pro-claimant.
The relative prominence of physicians who testify in workers’ compensation cases is also an important factor. Some treating physicians are so well known for their professionalism and honesty that even the most employer-oriented judges rarely disregard their opinions. On the other hand, there are physicians whose qualifications are limited, whose integrity is questionable, or who make too much money performing medical-legal work to be trusted. There are physicians performing Independent Medical Evaluations who never give the benefit of the doubt to an injured claimant. Their reputations are well known, and even employer-oriented judges are aware of them. On the other hand, there are many claimants’ physicians who have similarly bad reputations. .
There are reasons other than the quality of your medical evidence that may diminish the value of your case, including any defenses the company has to your claim. Whether you were acting in the course and scope of your employment or injured yourself because of intoxication or while violating a work order are examples of issues you may have to consider.
On the other hand, the insurer also wants to limit the costs to administer your claim, including the salaries of claims representatives, lawyers’ fees, expert witness fees, and other litigation costs. Though your future financial needs are important, the value of your case will be determined not by those needs but by the amount the insurer reasonably believes it will have to pay in the future, considering all the limitations described in this book.
Eight Things You Need to Consider If You're Thinking About Settling Your Case
The present value of your weekly compensation benefits.
To estimate the amount the insurance company will have to pay for future wage loss benefits, lawyers and insurance companies often project the earnings you could receive in alternate employment. Once you estimate the wages you realistically could earn, you calculate the weekly partial disability benefit the insurance company must pay you if you find a job paying your estimated wage. Because you may receive such benefits for no more than 500 weeks, you do not assume you would receive these benefits for life. Finally, you must convert these future dollars to “present value.”
For example, if your average weekly wage at the time of injury was $800.00, and you estimate you can earn $500.00 per week, the insurance company must pay you a "make up" check of $200.00 per week. ($800.00 average week wage - $500.00 return-to-work wage = $300.00 x 2/3 = $200.00). If we assume that this wage will never go up (which is probably unrealistic-let’s hope you can get a raise at some point!), the insurance company must keep paying you $200 per week for up to 500 weeks.
What is the "present value" of the insurance company's obligation to pay you $200.00 per week for 500 weeks straight? At first glance, it would seem to be $100,000.00. (500 weeks x $200.00/week = $100,000.00). This is not correct, however, because money paid to you in the future is not worth the same as money paid to you now. (Would you rather have $200 today, or 500 weeks from now?).
The best way to explain the present value concept is to consider what happens if you win a million dollar lottery. Before you hire Jonny Paycheck to sing “Take this Job and Shove It” to your boss, remember that you get a 20 year payout, or $50,000.00 per year for 20 years. Doesn’t sound as good as a million up front, does it? It isn’t. If you were paid a million dollars up front, you could invest the money and live off the proceeds of the investment. If, for example, you earned a 6% return on your million dollar investment, you would receive $60,000.00 per year in investment income alone. If you spent your earnings every year, at the end of 20 years, you’d still have one million dollars. If you received a million dollars spread over 20 years, and spent $50,000.00 each year, at the end of 20 years, you’d have nothing. So when you start adding up all those dollars the insurance company has to pay you in the future, use a present value calculator (which you should be able to find on the web) to learn what they have to pay you in today’s dollars.
Future Medical Costs
Workers’ compensation insurers are very suspicious about the purported cost of future medical treatment. So many injured workers receive excessive treatment from workers’ compensation “medical mills” that insurance company personnel become cynical about the real needs of claimants for medical treatment. Nonetheless, depending on the severity of your injury, future medical costs can be a very significant part of the settlement value of your case. If you are suffering from chronic pain and need lifelong pain management, the cost of such treatment can mount steadily. The insurance company will not, however, believe you are going to receive acupuncture, physical therapy or chiropractic treatment three times a week into the indefinite future. They will also be doubtful about claims that you will need to undergo surgery in the future, unless the need for such surgery is well established. For most people, the insurance company is very skeptical about the cost and need for future medical treatment, and any analysis of these costs must be based on treatment that will really be needed and not on the assumption that whatever the cost of treatment was in the past will continue indefinitely into the future.
You have to be careful about settling the medical expense portion of your claim because it is not clear that a health insurance company is required by law to pay your future bills, which may have to be paid out of your pocket.
Long-Term Disability and Pension Benefits
You may be covered by a pension plan or insurance policy that provides short-term or long-term disability benefits. The benefits under these plans usually are reduced by any workers' compensation benefits you receive. For example, if you are entitled to $700.00 in long-term disability benefits per week and you are receiving $600.00 in workers’ comp benefits per week, the long-term disability insurance company usually must pay only $100.00 per week. If you're entitled to these benefits, you need to understand the impact settlement of your case will have. As discussed in more detail below, a resignation of employment may prohibit you from receiving long-term disability pension benefits.
Social Security Disability
The Social Security Administration is entitled to an offset for workers’ compensation benefits, but it is not dollar for dollar. Very high wage earners who have been working for many years will find that they have no offset at all. Individuals whose earnings have been relatively modest or who have not worked for many years may find that there is a complete offset and they collect nothing in Social Security disability benefits.
In many cases, you can settle your workers’ compensation case in a way that will entitle you to an increase in your social security disability benefits. Contact the Social Security Administration to obtain your ACE (Average Current Earnings) and PIA (Primary Insurance Amount). With this information, your lawyer can calculate if you will receive additional social security disability benefits if you settle.
Resignation from Employment
The insurance company may require you to resign your employment when you settle. Although you have no legal obligation to do so, as a practical matter many workers’ comp insurance companies will refuse to settle your claim unless you sign a resignation. If you used your twelve-week Family and Medical Leave time, under most circumstances quitting is not a problem. Unless you have protection under a union contract, Pennsylvania is an "at will" employment state, which means that an employer can let you go for any reason at all, except for some limited reasons specifically prohibited by federal and state law. Quitting, therefore, is often meaningless because your employer is not required to re-hire you anyway. Nonetheless, you need to consider what may happen to other benefits you may have if you resign.
Are you entitled to disability pension benefits through your employer? If so, what impact will settlement have on your right to receive those benefits? If you are a member of a labor union, there may be many benefits available to you, and you need to understand the impact resignation will have on your right to collect these benefits. Some union contracts require your employer to pay for health insurance and other benefits while you are out for a work injury. If so, you may lose that right if you resign your employment.
Contrary to popular belief, your employer is not required to pay health insurance premiums if you are out for a work injury unless you are working under a union contract that mandates it. You may, however, have the right under the COBRA law to buy health insurance benefits for up to 18 months at your employer’s rates. Check with your human relations department for your rights under COBRA.
Your lawyer needs to know if you are receiving or are eligible for Medicare, but if you are applying for or receiving Social Security disability benefits and are not yet eligible for Medicare, tell your lawyer the date that you will be eligible, which is two years from the date of onset of your disability under social security rules. Once you become Medicare-eligible, it will be more difficult to settle your case because the Center for Medicare Services (CMS) will require that a sum of money be set aside for use to pay future medical bills for your work injury. The rules on this issue are known by all experienced workers’ compensation lawyers. Make sure you talk to your lawyer about this.
Settling Claims through Mediation
A mediation is an informal meeting in which a Workers’ Compensation Judge who is not going to decide your case will try to see if it can be settled between the parties. Before the meeting, the opposing parties file private mediation statements in which they discuss the strengths and weaknesses of the case. Usually, but not always, settlement negotiations will be underway before the mediation starts. The parties describe the status of settlement negotiations in their mediation statements.
Although the procedures used by different judges are different, a mediation usually begins with a description of the process by the judge, who also says that he or she will decide the case. The judge may put the parties in different rooms, shuttling back and forth to relay information or settlement proposals to the parties. As the mediation proceeds, the difference between the offer by the insurance company and the demand of the claimant will decrease until a settlement can be reached or the negotiations fail. In most situations, both parties leave the mediation a bit dissatisfied.
Although the mediation is an informal process, you need to show respect for the mediating judge. Just as if you are testifying in court, you should dress appropriately. For a description of acceptable dress, see Chapter 10 of The Wounded Worker.