How to Settle Workers Comp Claims

Settle.  Small word, big consequences. Do you settle or not?  Sometimes it seems as if the answer is "whatever you do will be wrong but you must act at once!"  The question is not one that can be anwered from outside of your organization with much care given to the consequences.  Workers' Compensation claims have defined benefits.  In most jurisdictions, those, benefits include medical treatment, lost wages and impairment.   If the benefits are defined, why bother to settle?  The answer, quite simply is that while you know WHAT you have to cover, you don't know how LONG you have to cover a specific benefit and, as a result, don't have an accurate picture of how much it is going to cost you.  Some employers take the position that to settle a claim is to encourage more claims and possibly to even participate in fraud for those claims that don't seem to have a solid basis in fact.  Other employers consider that a comp claim is going to cost them money either in paying it, defending against it or in settling it and that the most prudent course of action is to make the decision in light of the circumstances and to eschew any hard and fast rules.  As with most decisions in life, the only difference between the BOLD choice and the FOOLISH one is the outcome.  If it goes your way, the decision was correct and your choice was bold.  If it goes the other way, well....  So then, what are the implications of a settlement policy?  Let's consider first the employer that says "no way, no how, no matter how little or how much."

NO SETTLEMENT AT ALL
There are some instances in which a no settlement policy makes sense, at least for a period of time.  If your experience has convinced you that settlements have produced negative consequences for your business or will likely lead to that in the future, then your instructions to your attorney is to decline any and all settlement demands from opposing parties.  Most often the response will be dumbfounded silence followed by probing questions designed to test how seriously that policy will be applied.   You should be prepared to give your reasons to demonstrate that yes, you really mean no settlement.  For example, if your business is in a small community in which your employees are all friends and neighbors, your conclusion is that settling one case led to ever increasing demands for settlement and that with everyone thinking that their claim is worth more than the previous one, even entertaining demands became untenable.  Another example might be with a business that was in growth mode and that this business had previously settled claims with a resignation from the injured worker only to see that same injured worker show up at a facility which was being acquired.  The limitations on your ability to ask about prior medical conditions and concerns for the possibility of ADA violations, led your company to conclude that settlement is not worth the risk.  Yet another example might be cases in which you will consider nominal settlements but no settlements if an Medicare Set Aside entanglements might be required.  In other words, just saying no invites questions and challenges.  But, saying no with a convincing rationale as to why you've made that call provides the attorney with the idea that you've thought this through and that he should not waste his time or yours in pursuing settlement any further.

The problem with the no settlement policy, is that it takes a long time for word to spread amongst the Plaintiff's bar that you mean business.  After that word has spread sufficiently, your reputation will become well enough known that the minor claims sometimes are not pursued as vigorously as before the policy.  In the meantime, your legal expense budget has gone up as you've defended the claims that needed defending, taken your lumps where indicated (we all make mistakes so it is unrealistic to suspect that a wrong decision on compensability, a late check check or a failure to timely pay a medical bill isn't going to happen).  While that process is going on, those claims that are legitimate, that are severe remain on your books and the reserves affect your experience modification rating such that increasing amounts are reserved simply to maintain the claim and not to dispose of them.  In the meantime, the more serious of those claims become entangled with Social Security Disability, Medicare conditonal payments and the need to account for medical expense for the compensable conditions for the remainder of the injured worker's life.  Face, it, while medical treatment from  a back injury 1970 is realistically going to taper off, the formulas for calculating the MSA mean that every time this person has an exacerbation, an ache from just getting older, the Center for Medicare Services assumes that it's your's to cover. 

I do not mean to suggest that the no settlement policy is always a bad idea, only that while it saves money on one end of the claim, it also costs money on the other end.    For example, if you are presented with a compensable claim in which an employee is returned to modified duty, you will need to recognize the ongoing obligation for income and medical treatment.  If your choice before was to pay, to settle or to return the employee to work, your choice  now is necessarily restricted to pay or return the employee to work.    Of the two, returning the employee to modified duty work requires the most patience out of you, your staff and your organization.  If the restrictions are such that you cannot accomodate, or just that this accomodation per the ADA is going to make the next accomodation request more difficult, then the decision NOT to settle may have the effect of rendering the already serious claim a permanent total one.  

SETTLE EVERYTHING

As with the "absolutely not" policy listed above, the decision to settle anything and everything also has consequences.  While the no settlement policy may take time to wind its way through the grapevine, the settle everything mantra can spread faster than wildfire.  If your decision is to settle in lieu of bringing any injured worker back to work at modified duty, beware that you MAY be both establishing a baseline for claim value and providing a road map for someone to present a questionable claim while they are on the way out the door to another employer.  If that employee knows that all he must do is to get restrictions imposed and that you will throw 10-20k at him to get him to go away, you will have others lining up to take that same well-trodden path.

CASE BY CASE ASSESSMENT

Moderation in all things may be a good thing. In this discussion, moderation simply means that you will not immediately move to settle, you will not immediately refuse to consider it.  Still, you may wish to establish certain standards for what will and will not be settled.  That decision should be communicated to your injured workers and their attorneys early and often.  For example, the current bane of my existence is complying with the Medicare Secondary Payor act and assuring that in any case in which the employee is on medicare or likely to be on medicare, that we take Medicare's interests into account and not attempt to transfer that private risk to the taxpayer.  If you decide that the process and pricetag for MSA's is simply too much, your decision not to settle any cases in which an MSA is necessary should be communicated as a warning to injured workers and their attorneys that they should not apply for social security disability benefits as to do so means that the claim will be removed from the settlement consideration list.  Again, this requires patience, courage and tenacity on your part because that claim now requires extra attention.  That attention may be in the form of managing the medical care, returning the employee to work with your company, or paying for vocational assistance to secure suitable employment elsewhere. 

The bottom line is that comp claims cost money.  Your decisions on settlement should be made in consideration of immediate and long term costs.  Saving money in the short run on settlement may cost money in the long run on medical or income.  You should be aware not only of the direct costs but also the indirect costs associated with your claims.  There is no way to compute with mathematical certainty what the least expensive option may be.  You should decide though with a full understanding of all of the numbers and include in that calculation what the impact on your business may be from each option available to you.   


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