Massachusetts’ highest court recently ruled in a case of first impression that a workers’ compensation insurer is not entitled to a lien on the money awarded to claimants for pain and suffering.
This ruling from the Massachusetts Supreme Judicial Court on Feb. 12 could impact how much worker’s comp insurers in Massachusetts can recoup from claimants in similar cases in the future.
According to David J. Pellegrino, a partner at Partridge Snow & Hahn LLP who submitted an amicus brief on behalf of the American Insurance Association for this case, the court’s decision essentially reduces the pool of funds from which a workers’ compensation insurer can recoup its outlay.
Under the Massachusetts Workers’ Compensation Act, an injured employee is allowed to bring a lawsuit against an unrelated third party who caused the injury, Pellegrino said.
More specifically, MGL c. 152, Sec. 15 allows such a suit to be brought even though the injured employee received workers’ comp benefits for the injury.
If an employee wins damages from a third party, the employee’s workers’ comp insurer is statutorily entitled to a lien on the recovery for the amount that the insurer paid to the employee in benefits.
The stated statutory intent is for “the benefit of the insurer, unless such sum is greater than that paid by it to the employee, in which event the excess shall be retained by or paid to the employee,” Pellegrino said.
In its ruling, the Massachusetts Supreme Judicial Court looked at a case involving two electricians, Robert DiCarlo and Bernard Martin. Both were injured during their work, collected workers’ comp benefits, and then reached settlement agreements with third parties including damages for, among other things, their pain and suffering.
Both workers received workers’ comp benefits from Twin City Fire Insurance Company, a subsidiary of Hartford Insurance Company of the Midwest.
DiCarlo, who suffered serious injuries to his back in 2004 while working at a construction site, received more than $281,000 in workers’ comp benefits for medical expenses and lost wages.
DiCarlo and his wife then sued third parties including the construction site owner and the contractor managing that site. It resulted in a settlement of $100,000, with 35 percent of the settlement proposed to be allocated to DiCarlo’s pain and suffering and be exempt from the insurer’s lien.
In DiCarlo’s case, a Superior Court judge rejected a settlement agreement providing that the insurer would not have a lien on the damages for pain and suffering, concluding that the insurer’s lien attached to DiCarlo’s entire recovery.
DiCarlo appealed the decision, citing the Massachusetts Appeals Court’s 2011 decision in Curry v. Great American Insurance Co., which held that an insurer’s lien does not attach to damages paid for pain and suffering because workers’ comp does not cover those harms.
The other worker, Bernard Martin, was injured in 2010 while working at a construction site and received more than $566,000 in workers’ comp benefits. Martin and his wife also sued third parties including a general contractor. It resulted in a settlement of $1 million, with 35 percent of the payment proposed to be allocated for his ongoing physical pain and mental anguish and be exempt from the insurer’s lien.
In Martin’s case, a Superior Court judge approved a settlement agreement similar to the agreement rejected by the judge in DiCarlo’s case, and Twin City Fire Insurance appealed.
In both instances, Twin City Fire Insurance sought reimbursement from the employees’ recoveries, including their awards for pain and suffering.
But in its ruling, the Supreme Judicial Court stated that the insurer did not compensate the employees for their pain and suffering, and so cannot seek reimbursement from damages paid for those harms.
However, the court stated, the insurer can recover payments for harms that are covered by the workers’ comp statute, such as lost wages and medical expenses.
The court emphasized that this ruling will not deprive an insurer of its reimbursement rights where an employee and a third-party defendant reach a settlement that would “stack the deck” against the insurer by inappropriately allocating the bulk of damages to pain and suffering.
The court said MGL c. 152, Sec. 15 precludes such a result by requiring that all settlements be approved by the board or reviewing board of the Department of Industrial Accidents or by a judge after a hearing at which the insurer has a right to participate.
Moreover, a settlement amount allocated entirely or in large part to pain and suffering will “be eyed by the court with a healthy dose of skepticism,” the court said.
Pellegrino, who serves as chair of insurance practice at Partridge Snow & Hahn LLP, explained that the general application had been to allow the workers’ comp insurer to recoup from the entire amount of an injured employee’s damages award regardless of classification.
That application changed with the Massachusetts Appeals Court’s 2011 decision in Curry v. Great American Insurance Co., which for the first time held that damages allocated as “pain and suffering” could not be reached by the workers’ comp insurer. At the time, the Supreme Judicial Court did not grant further review of Curry.
Commenting on the Supreme Judicial Court’s ruling, Pellegrino said that rather than look at the amount of money received either through the workers’ comp system or awarded in damages, the Supreme Judicial Court looked at the nature of the award.
“The court held that if the nature of the third party tort award is characterized as pain and suffering, the insurer could not recoup from that portion,” he said.
“Examining the statute’s use of the term ‘injury,’ the court decided that the legislature could not have intended an expansive use of the term. Rather, the amount of the ‘injury’ that the insurer could recoup could only be that amount for which the insurer paid compensation,” Pellegrino said. “Since a worker’s compensation insurer does not compensate for pain and suffering, it likewise cannot be reimbursed from an amount characterized as such.”
“The court’s decision essentially reduces the pool of funds from which a workers’ compensation insurer can recoup its outlay based upon the way the third party tort system defines a damages award,” Pellegrino said.
“Indeed, defining the nature of the injury by the third party tort action thrusts the fault-based system upon the workers’ compensation system to determine the extent of the statutory lien. Because the pool of attachable funds is reduced, insurers are less likely to be made whole and will keep available funds out of the workers’ compensation system,” he said.
Additionally, he said, the industry will have to remain vigilant with regard to employees’ third party tort actions to make sure the bulk of damages are not inappropriately allocated to pain and suffering.