“The only good file is a closed file!” This is a saying that echoes across claim management teams around the country. Reaching that goal is filled with barriers and pitfalls that everyone working on a file should take notice of when working toward this goal.
Drafting the Perfect Settlement Agreement
While legal counsel draft most settlement agreements in workers’ compensation claims, it is important that claim professionals do not assume the agreement is ready for circulation. A complete review of every agreement is necessary before it can be sent to opposing counsel. Here are some factors to consider when reviewing this important document.
- Review the document to make sure it meets your expectations and authority. It is important to double check payment amounts and verify the items you intend to close-out are actually referenced in the agreement. Remember that most courts interpret settlement agreements consistent with contract law principles. As a result, this document will be interpreted against the party who drafted it if found to be ambiguous.
- Pay particular attention to representations and statements of material fact. This is a requirement in most jurisdictions. All statements should be in clear and concise sentences and avoid legalese. It is also important to make sure elements such as an average weekly wage and the itemization of benefits already paid are stated in the document, if required.
Other Important Considerations
In workers’ compensation claims, the law has evolved to the point where there are a number of other issues to consider. These considerations include potential subrogation rights, the length or term of a medical close-outs (e.g. – closure of medical benefits “to-date” or for a certain period) and issues concerning the disability status of a claimant. Concerns regarding Medicare’s interests is another hot-button issue.
Dealing with Medical Providers
The rights and interests of medical providers and insurers is also an important issue to consider. In some jurisdictions, these parties have special rights of intervention that must be considered and outlined in a settlement agreement. In other parts of the country, these stakeholders have little to no recourse if they are not involved in a settlement. Be sure to know the law in the jurisdiction you are settling a case. Consultation with legal counsel may also be required.
Use of Structured Settlements
Structured settlements are a cost-effective and creative tool parties can use to settle workers’ compensation cases. They also add value to just about any settlement and provide a “savings” for insurance carriers.
Prior to considering a structured settlement, it is important to understand the special tax rules that apply. This information can be obtained from a broker who can also assist in presenting options based on the facts of the case.
- Benefits to the Injured Party: Claimants can benefits from a structured settlement in their workers’ compensation case as it spreads the payment of their settlement out over a period of time and provide for a consistent flow of non-taxable income. They can also earn interest on their settlement proceeds at a rate higher than they would receive if their money was placed in a traditional savings account.
- Benefits to Insurance Carriers: Use of a structured settlement “reduces” the amount of money spent on a settlement and provides for creative settlement options. This is especially helpful in high exposure cases, but can be used effectively in typical cases.
- Benefit to Attorneys: Structured settlements benefit plaintiff and defense attorneys. It also provides for them to reach a creative settlement and obtain a “win” for their client(s). Interesting enough, attorneys also find value in structuring their own attorney fees.
When using a structured settlement, parties have a number of different payment options. These include annual payments based on the claimant’s life expectancy and the amount the case settlement amount. Payment option can be made through the end of person’s life, or for a fixed period of time. Use of a structured settlement can also be used to fund a Medicare Set-aside.
Here is an example of how a structured settlement can provide value, savings and creativity to your case:
The parties agree to a settlement amount of $500,000, which will be settled via a structured settlement. By working with a broker, the insurance carrier was able to purchase an annuity through a life insurance company. The broker was also able to secure a rated age for the injured party that further drove down the actual cost of the annuity due to co-morbid conditions of heart disease and diabetes. The final terms are as follows:
- Agreed upon settlement amount: $500,000
- Savings via rated age: $45,000
- Savings via annuity payments versus the lump sum: $106,000
- Total savings: $151,000
- Total payments to the Employee: $500,000
Vacation of Settlement Agreements
Having a settlement agreement at some point in the future is the last thing any defense attorney or claims management professional wants to happen. While it is impossible to draft an ironclad agreement in most jurisdictions, there are steps that can be taken to prevent this from happening.
While the law varies, most states allow a settlement agreement to be vacated if there is a mutual mistake of fact, newly discovered evidence, fraud or a substantial change in the claimant’s condition. In order to avoid this from happening, several best practices can be included in an agreement to prevent this from taking place:
- Include a series of questions in the agreement that outline the claimant’s affirmative understanding of the agreement. It is also suggested to have the claimant affirm in writing that they reviewed the entire document, had it explained to them by their attorney, they understand the seriousness of their injury and that the condition(s) may worsen in the future.
- Dealing with pro se litigants should make claim management professionals to take extra caution in their agreements. In order to avoid problems in the future, they can suggest the agreement be reviewed by an attorney or request the matter be placed on for a hearing in front of a compensation judge where the claimant will need to acknowledge the settlement terms “on the record.”
Conclusions
Settling workers’ compensation claims in a cost effective manner is the dream of every claim professional. Structured settlements are valuable tools to incorporate in the settlement strategy and negotiation process. Often times, a good claim is a settled claim.
Author Michael B. Stack, CPA, Principal, Amaxx Risk Solutions, Inc. He is an expert in employer communication systems and helps employers reduce their workers comp costs by 20% to 50%. He resides in the Boston area and works as a Qualified Loss Management Program provider working with high experience modification factor companies in the Massachusetts State Risk Pool. He is co-author of the #1 selling book on cost containment, Your Ultimate Guide To Mastering Workers Comp Costs www.reduceyourworkerscomp.com. Contact: mstack@reduceyourworkerscomp.com.
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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.
