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Section 20 settlements are not technically payments of workers’ compensation benefits except for insurance rating purposes. These settlements are popular with employers because the file can be closed for good with no potential for a reopener claim. In many states, the Section 20 settlement is called a full and final settlement. But does a Section 20 settlement mean that the employer has no subrogation rights as to medical, temporary or permanency payments when the injured worker has a good third party case arising from the work accident?
It is important for practitioners to consider at the time of a Section 20 settlement whether there is a third party case pending. If so, the issue arises whether the employer has a lien on medical and temporary disability benefits paid prior to the settlement. Example: suppose the employer pays $30,000 in medical and temporary disability benefits to a claimant, who has a good third party lawsuit which he will eventually settle for $100,000. There are causation issues in the workers’ compensation case such that the parties agree to settle the permanency claim petition months later for $45,000 on a Section 20. On the day of settlement, no one mentions anything about the prior payments of $30,000 for medical and temporary benefits. The Judge of Compensation approves the Section 20 settlement for $45,000. A few days later the third party case settles for $100,000, and the employer requests reimbursement of two thirds of the $20,000 it has paid in medical and temporary disability benefits.
Does the claimant owe the employer $20,000 minus $750 in costs of suit? The answer is yes, according to Aetna Life & Cas. v. Estate of Engard, 218 N.J. Super. 239 (Law Div. 1986). The $45,000 payment under the Section 20 is not lienable, but the prior medical and temporary disability benefits made well before the case settled remain lienable. Best practice would be to place all of this on the record so that the injured worker is well aware that only the $45,000 Section 20 payment will escape the respondent’s lien, not the prior medical and temporary disability benefits.
Suppose the defense attorney in the same case negotiated with the petitioner’s attorney to allow the $45,000 Section 20 payment to be lienable? Can that be done in New Jersey when a Section 20 payment is not really a payment of workers’ compensation benefits? Yes, according to Calle v. Hitachi Power Tools, No. A-1015-09T1 (App. Div. February 15, 2011). This situation seldom happens in workers’ compensation court. But the parties are free to negotiate the terms of a settlement whereby the petitioner agrees to permit a Section 20 payment to be lienable. The Judge of Compensation must, of course, approve the entire settlement, including this aspect of the settlement. The intention to make the Section 20 payment lienable should be placed on the actual court order and on the record, thereby making clear that respondent has a lien on the Section 20 payment itself.
John H. Geaney, Esq., is an Executive Committee Member and a Shareholder in Capehart Scatchard's Workers’ Compensation Group. Mr. Geaney concentrates his practice in the representation of employers, self-insured companies, third-party administrators, and insurance carriers in workers’ compensation, the Americans with Disabilities Act and Family and Medical Leave Act. Should you have any questions or would like more information, please contact Mr. Geaney at 856.914.2063 or by e‑mail at firstname.lastname@example.org.