California extended the statute of limitations for personal injury cases from one year to two years in 2003. The practical effect of that change in the law was a delay in the prosecution of many cases, which in the past had been pursued right after the injury-causing event.

Since a Workers Compensation carrier has a right to pursue subrogation in many of those cases, the potential recovery those third party cases provided to a carrier was delayed. More importantly, the credit those cases can generate is delayed.

Carriers must adapt to this changing landscape in the way they handle subrogation cases. More importantly carriers need to rethink the way they handle, and settle, workers compensation cases where a third party case is pursued.

Civil damages in Superior Court may be pursued concurrently or consecutively with a workers compensation case before the Workers Compensation Appeals Board. While the third party case progresses to settlement or verdict, a workers compensation carrier is paying benefits. The delay in prosecution of the third party case occasioned by the lengthened statute of limitations and the delays inherent in the civil justice system means the injured worker may be closer to resolving his or her workers compensation case than resolving the third party case.

The desire to settle the workers compensation case with a Compromise and Release with closure of future medical is compelling. However, settling the workers compensation case before the third party case in this fashion deprives the carrier of its statutory right to credit. If the workers compensation case is settled in its entirety, the third party credit ultimately generated can go unused.

Labor Code §3861 provides:

“The appeals board is empowered to and shall allow, as a credit to the employer to be applied against his liability for compensation, such amount of any recovery by the employee for his injury, either by settlement or after judgment, as has not theretofore been applied to the payment of expenses or attorneys’ fees, pursuant to the provisions of Sections 3856, 3858, and 3860 of this code, or has not been applied to reimburse the employer.” (emphasis added)

Case law has held that a third party credit can apply to medical expenses (Simmons v. L&S Lighting Fixture Co. (1978) 43 CCC 594, En Banc), penalties and S&W penalties (SCIF v. WCAB (Brown) (1982) 130 Cal App 3d 933), medical legal costs (SCIF v. WCAB (McDowell) (1977) 76 Cal App 3d 136), and attorneys fees (SCIF v. WCAB (Borges) (1997) 53 Cal App 4th 579). That is in addition to temporary disability and permanent disability.

By resolving a case with a Compromise and Release prior to resolution of the third party case one gives up the potential credit rights generated by a settlement between the injured worker and the third party defendant.

Consider the use of a Third Party Compromise and Release if both the third party case and workers compensation case conclude at the same time. This level of coordination requires participation of workers compensation carriers in the third party case. Typically such settlements are reached as part of a global settlement at mediation where all parties are represented.

Where such coordination does not exist or the parties are not interested in a global settlement, a settlement by way of Stipulations with Request for Award provides greater flexibility in using a third party credit. It also reduces the amount of money a workers compensation carrier has into a potential subrogation case thereby making it easier to settle such cases.

When considering a settlement of a workers compensation case make sure the settlement takes into consideration the prospect a third party credit. Using the injured workers civil recovery to reduce a workers compensation carrier’s legal obligation is a right. A failure to use it is a lost opportunity.