Everything you’ve wanted to know about third-party recovery in Washington (but were afraid to ask.)

Whalen, Sam_167x222Recovering claims costs through third-party litigation in Washington can be complicated. If careless, self-insured employers (SIE) can walk away from third-party claims leaving money on the table. However, with forethought, third-party litigation can be an effective way for self-insured employers to recover the cost of processing a claim. The purpose of this post is to explain how entitlements to third-party recoveries are calculated, and what self-insured employers should think about to maximize their recovery.

In Washington, where a work place injury is negligently caused by a third party, the SIE is entitled to recoup both the cost of benefits paid under the claim and future anticipated costs. Any settlement or jury verdict is subject to the SIE’s entitlement.

If the third-party claim goes to trial, the SIE’s entitlement will be subject to the jury verdict. There will be no negotiation. However, in instances where the case is being mediated or negotiated, the SIE can negotiate the settlement with the other parties. Any settlement of third-party litigation less than the SIE’s entitlement is void, absent written consent from the employer.

At the outset of any third-party claim, the SIE must provide the worker with an “election letter” that directs the worker to pursue damages against the third party, or assign that right to the self-insured employer. This article will focus on situations where the worker elects to pursue the claim his/herself. If the worker assigns the right of action to the SIE, the SIE should consult with an attorney. Many strategic considerations arise when the self-insured employer becomes the plaintiff in the litigation.

Calculating the SIE Entitlement

Once the litigation is underway, the self-insured employer should calculate its entitlement. The self-insured employer is entitled to recover benefits already paid, and offset benefits paid in the future against the jury verdict or settlement. RCW 51.24.090. Calculating benefits already paid is relatively easy. All benefits paid out on the claim are recoverable. IME and other investigation costs, attorney fees, and administrative costs are generally not recoverable.

Calculating future expenses can be more difficult. If the claim is closed, future costs are those associated with an aggravation claim. In addition, if the worker requires a prosthetic, the self-insured employer is responsible for repairing or replacing prosthetics for the lifetime of the worker, and those costs can be factored into the entitlement. If the claim remains open, calculating future expenses is more speculative. The SIE entitlement typically includes: future payments of temporary disability, medical treatment, vocational assistance, and permanent disability awards. Some IME companies offer projections of future medical costs. These estimates of future medical costs can be effective in supporting the SIE’s assertion of future costs.

Distributing the Recovery

Negotiating the recovery is more of an art than a science, so I won’t go into it here. Suffice it to say, the goal of the negotiation is to achieve a settlement that covers all of the SIE’s paid benefits and estimated benefits, including its proportional attorney fee costs. It is important to note that the SIE is not entitled to recovery any portion of the settlement apportioned for emotional damages such as “pain and suffering.” In 2010, the Washington Supreme Court ruled that settlement funds apportioned to pain and suffering are not subject to the Department’s (or SIE’s) entitlement. Tobin v. Dep’t of Labor & Indus., 239 P.3d 544 (2010).

Any third-party recovery must be distributed according to RCW 51.24.060. The calculation is as follows: From the gross recovery, the claimant’s attorney deducts their fee and expenses. The balance is the “net recovery.” The claimant receives 25% of the net recovery. The employer receives the amount of its benefits already paid from the balance, minus its proportionate share of attorney fees and costs (paid to claimant’s attorney). The remaining balance, minus the SIE’s proportionate share of fees, is the balance subject to offset.[1] The employer does not actually receive the Balance Subject to Offset – this is money paid directly to the claimant. However, the SIE will not be required to pay out on the claim until future claim costs have exceeded the Balance Subject to Offset. Again, a proportionate amount will be deducted from this balance to pay the claimant’s attorney fee. It is the SIE’s responsibility to maintain accounting for the offset.

The “balance subject to offset” is where the employer is most likely to leave money on the table. If the SIE does not effectively calculate its future claim costs, and does not effectively negotiate the inclusion of those estimated claim costs as economic damages, the claimant and third-party defendant will likely apportion the balance of the settlement to emotional damages. As mentioned above, the SIE will not be able to access those settlement funds.

Here at SBH, we are experienced in preparing for third-party litigation, and effectively negotiating to maximize third party recoveries. If you have any questions about third-party litigation, or maximizing a third-party recovery, feel free to contact me at swhalen@sbhlegal.com or 503-595-6108.

[1] The Department offers a useful Third Party Recovery worksheet (available here: http://www.lni.wa.gov/Forms/pdf/F249-006-111.pdf). This worksheet assists in calculating each party’s entitlement to a third-party recovery.