Workers' Compensation Law
Litigating Third-Party Credits at the Workers' Compensation Appeals Board
By Christopher A. Viadro
Barring unusual circumstances, workers’ compensation benefits are available to an injured worker for an injury that arises out of and in the course of employment. (Lab. Code §3600.) While such benefits are ordinarily the exclusive remedy for an injured worker against their employer, the employee is not prohibited from bringing a lawsuit against any other person/entity that is at least partially responsible for causing the incident and injury. (Lab. Code §§3602(a), 3852.) Such other persons/entities are referred to as third parties, and a lawsuit against one is termed a third-party lawsuit.
While an injured worker may submit a workers’ compensation claim to their employer and pursue a civil personal injury suit against a third party for the same injury, an injured worker is not entitled to double recovery for a workplace injury. For this reason, workers’ compensation carriers often file a petition for third-party credit. By doing so, the carrier seeks credit for monies the injured worker received in the third-party case and relief from obligations to pay future workers’ compensation benefits. Labor Code section 3858 provides for such relief.1 However, a carrier’s entitlement to such a credit is not automatic. In many instances, the carrier will have to continue paying benefits despite the injured worker’s receipt of monies in the third-party case.
This article focuses on two questions:
- When is the workers’ compensation carrier entitled to such a credit and the right to terminate benefits?
- How are disputed issues regarding such credits addressed at the Workers' Compensation Appeals Board?
II. UNDERSTANDING CREDIT THRESHOLDS
a. When Is a Third Party Credit Permissible?
A workers’ compensation carrier’s entitlement to credit depends primarily on two factors. These are the nature and extent of employer fault and the nature and extent of overall civil damages. Why is this so? As to the former, it has long been the law that:
it is contrary to the policy of the law for the employer, or [their] subrogee, the [workers’ compensation] insurance carrier, to profit by the wrong of the employer.
(Witt v. Jackson (1961) 57 Cal.2d 57, 72.) Said another way, neither the employer nor the workers’ compensation carrier should be able to benefit via a credit and the ability to stop paying benefits when the employer was partially responsible for causing the injury. Thus, the concurrent negligence of the employer can be invoked to defeat the workers’ compensation carrier’s claim for credit for third-party monies received.
How does this work in practice? Employer fault is only part of the equation. Assessment must also be made of the overall civil damages. These two elements are combined, and a workers’ compensation carrier is not entitled to a credit until benefits paid are more than the employer’s proportional share of fault vis à vis total damages. (Associated Const. & Eng. Co. v. WCAB (1978) 22 Cal.3d 829.) The following credit threshold equation illustrates this concept and the threshold at which a workers’ compensation carrier is entitled to credit:
(% Employer Negligence) x (Total PI Damages) = Threshold Number for Credit
Following are a few illustrative examples. Assume the purported facts exist and/or are arguable in a credit trial.
In Example 1, the workers’ comp carrier would not yet be entitled to any credit. It has paid only $75,000 in benefits. That $75,000 is $125,000 less than the $200,000 threshold number that represents its proportional share of the overall damages. Thus, it would need to pay $125,000 more in benefits before it could get a credit for third-party monies received.
$200,000 (that is, 20 percent x $1 million in damages)
Workers’ compensation benefits paid/lien:
Net to applicant:
$350,000 (after fees and costs)
It should be emphasized that the percentage of employer fault is applied to the projection of total personal injury damages, not the settlement value of a third party case. A settlement figure is not the same as the overall damages. Settlement figures are always less than the total damages, due to the nature of contested issues in a case. They can be less than total damages due to contested liability issues, contested damages issues, and, most pertinent here, the existence of employer fault.
When, as in this example, there is sufficient employer fault to bar a third-party credit, there is no actual double recovery for the plaintiff/applicant. This is because the applicant’s recovery in the civil case has been reduced in relation to overall damages to account for employer fault.
Another example shows a different result.
$200,000 (that is, 20 percent x $1 million in damages)
Workers' compensation benefits paid/lien:
Net to applicant:
$350,000 (after fees and costs)
In this example the facts are the same as in Example 1 except that the workers’ compensation carrier has paid $300,000 in benefits instead of $75,000. In this scenario, the workers’ compensation carrier would be entitled to a credit since the $300,000 in benefits paid is more than the $200,000 threshold number. In this case, a workers’ compensation carrier would be entitled to a $350,000 credit; that is, for the third-party monies the applicant received. In such a situation, the $350,000 credit would probably, for all intents and purposes, extinguish the workers’ compensation carrier’s obligations in the workers’ compensation case. However, a credit can be “eaten up.” If the injured worker were to spend all of the civil monies received on medical treatment and/or self-payment of disability benefits that would otherwise have been due, then the workers’ compensation carrier’s obligation to pay benefits would resume.
b. Litigating the Credit Claim
Under the Labor Code, an injured worker is required to provide the employer with notice of a third-party settlement. Such notice typically details the monies the applicant has received in that case. With that information, the workers’ compensation carrier may file a petition for credit. The applicant then needs to file a timely response/objection to the petition. Though not required, the applicant’s attorney might find it helpful to use the opposition as an opportunity to set forth allegations regarding the nature and extent of employer fault and the overall civil damages.
Where does the required information come from? An applicant’s attorney should be able to get employer fault/damages information from the third-party attorney. The third-party attorney may even be willing to draft this aspect of the opposition to the petition. The allegations the applicant’s attorney sets forth can serve the purpose of educating a workers’ compensation carrier or workers’ compensation defense attorney regarding the employer fault/damages issues. As the carrier or defense attorney often does not have any of this information, the response to the petition may be sufficient to get a carrier to back off from a credit claim, as it makes no sense to throw good money after bad in litigating meritless credit claims.
In some cases, there is no employer fault. For example, in a rear-end auto accident, there is typically no employer fault. Instead, a workers’ compensation carrier will typically be entitled to the credit. The workers’ compensation case will be either terminated or simply interrupted, depending on the size of the third-party recovery and the nature and extent of future benefits in the workers’ compensation case.2
If, however, a credit case must be litigated, how is that conducted? In a civil trial, the plaintiff has the burden of proving the elements of their particular claim; a plaintiff must also be prepared to deal with a defendant’s affirmative defenses. In a simple negligence case, a plaintiff would have to show that the defendant was negligent, the nature and extent of harm to the plaintiff (that is, damages), and whether the negligence caused the particular harm. A defendant might have affirmative defenses (such as employer fault or comparative fault) that would add to the issues in a case.
Other types of cases can be more complex. In a third-party product liability case, the following questions might arise: Did the product’s design cause injury to the plaintiff? What is the gravity of the potential harm resulting from the use of the product? What is the likelihood that this harm would occur? What is the feasibility of an alternative, safer design at the time of manufacture? What is the cost of an alternative design, and what are the disadvantages of an alternative design?
In the civil realm, the presentation of evidence necessary to support the foregoing claims is substantially different from cases before the WCAB. Civil cases may require the introduction of hundreds to thousands of pages of documents and testimony from many witnesses, among other forms of evidence. For example, with regard to expert witnesses alone, there may be multiple physicians, mental health professionals, vocational experts, economists, biomechanical experts, safety experts, design experts, and so forth. The length of trial for such cases varies depending on the amount of evidence and the number of issues in the case. This author has had civil trials as short as one week and as long as a couple of months.
It is not feasible or permissible for a workers’ compensation credit trial to proceed in the same way, for a few reasons. First, the WCAB does not permit certain experts to testify at trial. Medical and vocational evidence may be submitted by means of reports and/or deposition testimony. But, even with the submission of reports/transcripts for these types of experts, a credit trial can be too long, testing the patience of the workers’ compensation judge. Reports and deposition transcripts, when available, can be a good approach for other witnesses, as well.
Most workers’ compensation attorneys are not used to dealing with fault principles and the presentation of evidence necessary to establish the elements of a liability claim. What, then, should the workers’ compensation attorney do? If the applicant’s attorney has a good relationship with the third party attorney, the workers’ compensation attorney should consider asking the third party attorney if they can associate into the workers’ compensation case for purposes of handling the credit trial.
Regardless of whether the applicant’s attorney or the third party attorney is handling the credit trial, how does one provide the mass of civil evidence to the workers’ compensation judge in a manner that makes sense (keeping in mind that the judge does not normally deal with fault and other civil issues)? First, it is critical to file a very detailed trial brief explaining all of the evidence and issues.
Additionally, hiring a third-party expert to synthesize the civil case evidence, draft aspects of the trial brief, and present things cogently and succinctly to the WCJ is the recommended approach. The third-party attorney can review all of the materials generated in the third-party case and make cogent projections on the damages and liability issues in the case. The third-party attorney who handled the companion civil case is an obvious choice; however, they will be a bit vulnerable to assertions of bias by the defendant. Another option is to hire an independent third-party attorney. In either case, the applicant’s attorney can petition for reimbursement of the third-party attorney’s expert fees. This author has never seen an instance where such fees have not been reimbursed. Sometimes the anticipated fees can be substantial if a lot of time will be involved in the review of the civil case; the mere prospect of such fees in the tens of thousands of dollars can be an effective means by which to resolve the credit issues informally.
If a trial is ultimately necessary, the applicant’s attorney simply needs to walk the third-party attorney through all of the evidence to obtain opinions on liability, employer fault, overall damages, and/or any other issues in the case.
It should be noted that some workers’ compensation judges may be resistant to handling credit trials. This may be because it is such a rare and unfamiliar thing or perhaps because of the time involved and otherwise heavy caseloads. If the applicant’s attorney can get the defendant to agree, it may be prudent to use a private arbitrator.
Christopher A. Viadro is a founder of Butler Viadro, LLP. He has been practicing law since 1992 and focusing on third-party and workers’ compensation cases since 1996.
1 “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.” (Lab. Code §3858.) 2 The credit will apply to attorneys’ fees as well, which can prevent applicants’ attorneys from being compensated for their work. For this reason, it is recommended that applicants’ attorneys protect themselves by including language in their attorney/client agreement that allows for compensation from third-party monies should a third-party credit be allowed. A copy of this agreement should be served on the third-party attorney. Such attorney compensation is subject to approval by the WCAB, but it provides some protection for an applicant’s attorney’s fee for the effort put in on a case.