Litigating Third-Party Credits at the Workers' Compensation Appeals Board

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.