Avoid Post-Settlement Surprises by Carefully Drafting Settlement Documents
By Shannon Fellin, Esq.*
Settlement of a workers' compensation claim serves to define and limit the costs of the claim and to avoid future litigation. Careful drafting of the settlement documents is key. In too many cases, settlement does not end the case. New litigation arises over issues that were not properly addressed in the settlement paperwork. This article includes tips for drafting settlement documents to achieve these goals.
The Compromise & Release Agreement
Once the parties have reached an agreement, the settlement must be approved by a Workers' Compensation Judge. The settlement terms are presented on a specific form, the Compromise & Release Agreement (C&R). The C&R is a straightforward document with 19 paragraphs, including a miscellaneous paragraph. It is typically drafted by the employer's counsel for review by the employee's counsel.
Before a Workers' Compensation Judge can approve the C&R, he or she must find that the employee understands the "full legal significance" of the settlement documents. The more accurate and precise the settlement language is, the more likely a judge will find that the employee understands the terms.
Paragraphs 1, 2 and 3 request basic identification information, including the date of injury, average weekly wage and workers' compensation rate. Note: separate C&Rs may be necessary if there is more than one injury claim.
Paragraph 4 asks for the precise nature of the injury and whether the disability is total or partial. This is an opportunity for the parties to specify which injuries are considered part of the work injury (or alleged work injury). The parties may wish to narrow the description of injury, or expand it. Some injuries may be excluded from the C&R altogether. The description of injury is important because it controls which medical expenses are payable and by whom.
A recent Commonwealth Court case has confirmed the importance of an accurate injury description in a C&R. In DePue v. WCAB (N. Paone Construction, Inc), 61 A.3d 1062 (Pa.Cmwlth. 2013), the employee resolved his case through a C&R that left open his future medical benefits. The C&R contained language describing the injuries as "[a]ny and all injuries…including but not limited to the accepted injuries of a severe closed head injury with seizure disorder and short term memory loss." Two years later, the employee filed a penalty petition, which alleged that the employer failed to pay medical bills, and a review petition, which sought to expand the description of injury to include his left shoulder. The Workers' Compensation Judge denied the petitions on the basis of res judicata, determining that the issues had already been decided. The judge found that the employee was aware of the left shoulder injury at the time of the settlement and had agreed not to include it in the C&R and was, therefore, barred from adding additional injuries. This conclusion was upheld by the Workers' Compensation Appeal Board and the Commonwealth Court. The Commonwealth Court noted that the employee had the opportunity to review and modify the C&R prior to the settlement hearing and had agreed to the language. DePue serves as a reminder that the parties must be very careful when describing the injury in Paragraph 4.
Paragraph 4 is also used to outline whether total or partial benefits have been paid. If an employee is receiving wage loss benefits at the time of the settlement, this section should specify when those benefits will stop (e.g., the date of the settlement hearing, or continue after, with or without a credit).
Paragraph 5 details the total amount of wage loss, specific loss and medical benefits paid to date. This information is typically provided by the adjuster. It is recommended that this information be completed if there is a potential subrogation claim (see Paragraph 11).
The C&R also requires the parties to indicate whether the settlement resolves wage loss benefits, medical benefits and specific loss benefits. Paragraphs 6, 7 and 8 require the parties to check "yes" or "no" as to whether the settlement resolves these issues.
Paragraph 10 is an open-ended opportunity to detail the specific terms of the settlement. This paragraph should include the cash amount of the settlement, as well as a summary of what, if any, medical expenses will be paid. It is also important to list any condition precedent to the payment of medical expenses, such as any requirement that the bills be submitted by the provider in accordance with the Workers' Compensation Act and regulations, or that the employee provide proof of payment for any out-of-pocket reimbursement requests.
Paragraph 10 is an opportunity to address any health insurance or DPW liens. (Medicare liens are addressed separately in Paragraph 14).
Paragraph 11 addresses subrogation liens, both actual and potential. Pursuant to § 319, the employer is entitled to reimbursement if the employee receives recoveries from a third party, through a settlement or judgment, unless this right is waived. Paragraph 11 puts the employee on notice of a potential lien and should include the total amount paid to date (consistent with Paragraph 5), including amounts to be paid as part of settlement.
Paragraph 12 requires information on any current child or spousal support orders against the employee. This information should be verified through the Child Support Lien Search, with a print-out attached to the Child Support Affidavit (see below). If there is an arrearage, this must be addressed prior to the approval of the settlement.
Paragraph 13 is a listing of all benefits received by, or available to, the employee. The time period encompassed runs from the date of injury up to the settlement.
Paragraph 14 is required by the Medicare Secondary Payer Statute. Medicare's interest must be considered in any settlement. Failure to take Medicare's interest into account could result in significant penalties. This is a complex issue, and legal advice is highly recommended!
Paragraph 15 requests information on whether a vocational evaluation was completed. There is no legal requirement that this type of evaluation take place prior to settlement, however.
Paragraph 16 asks the parties to identify why they are entering into settlement. A general statement is sufficient for approval of the C&R.
Paragraph 17 lists information on the fee between the employee and counsel, which is usually a percentage to be deducted from the lump sum. All fees must be approved by the judge.
Paragraph 18 addresses the payment/reimbursement of litigation costs. The issue of costs should be negotiated prior to settlement. In particular, the amount of such costs, the payer and what will constitute sufficient proof of payment should be considered and resolved..
Paragraph 19 is for miscellaneous provisions. The parties are free to add any additional settlement terms.
Other Settlement Documents
In addition to the C&R, two additional documents are required at settlement:
1. Child Support Affidavit - An employee must sign a verified statement indicating whether there is a child support order and if there is an arrearage. This should be consistent with the information in Paragraph 12.
2. Fee Agreement – This is the contract between the employee and his or her attorney, to support the attorneys' fees listed in Paragraph 17.
The parties may also include other settlement documents, such as waivers and releases, as agreed to in the negotiations.
No one likes surprises, especially when they include unforeseen costs and litigation after settlement. The best way to avoid those situations is to anticipate issues during negotiation and to draft the settlement documents as precisely as possible.
*Shannon is an associate in our Harrisburg, Pennsylvania, office. She can be reached at 717-651-3507 or firstname.lastname@example.org.
Defense Digest, Vol. 19, No. 2, June 2013