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Texas: Workers’ Comp Carriers May Recover Multiple Third-Party Settlements Collectively

By Susan R. Heylman  7/29/2014
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The Texas Supreme Court has answered a question certified to it by a federal appellate court as to whether a workers’ compensation carrier’s statutory right to treat a third-party recovery as an advance of future benefits in a case involving multiple beneficiaries should be determined on a beneficiary-by-beneficiary basis or a collective-recovery basis. 

“When multiple beneficiaries recover compensation benefits through the same covered employee, the carrier’s rights to a third-party settlement are determined by treating it as a single, collective recovery rather than separate recoveries by each beneficiary,” the court ruled.

The case involved a state employee who died in a training accident and was survived by his wife and three minor children. The State Office of Risk Management (SORM), the workers’ compensation carrier for state employees, paid the employee’s medical and funeral benefits and began paying death benefits to the survivors.

The employee’s survivors brought a product liability and wrongful death suit in federal court against two companies. Of the $100,000 settlement from one company, SORM was paid $20,000; SORM’s right to reimbursement from second company’s settlement of $800,000 was the focus of the litigation.

After reducing the gross amount of SORM’s claim for benefits paid by its share of attorney fees and expenses, the federal court calculated SORM’s net reimbursement as $78,296. It apportioned the remainder of the settlement as $351,279 to the wife (individually and as representative of the estate), $80,109 to the children, and $290,317 for attorney fees and expenses.

The trial court determined that the recovery that SORM was entitled to treat as an advance against future benefits owed to the children equaled their share of the settlement. In other words, as soon as the amount of suspended benefits equaled $80,108, SORM was required to resume payment to the children.

SORM appealed the apportionment to the federal appeals court, arguing that an employee and all beneficiaries who collect benefits though that employee constitute a collective “claimant,” so that the third-party settlement was treated as a single recovery for purposes of the carrier’s right to treat it as an advance against future benefits. The survivors argued that each beneficiary constituted an individual “claimant” so that the carrier’s right to treat the recovery as an advance against future benefits was determined on a beneficiary-by-beneficiary basis.

The federal court sought an answer from the Texas Supreme Court, which concluded that neither the text nor the purpose of the Workers’ Compensation Act (Tex. Lab. Code Section 417.002(a), (b)) supported the family’s argument that future benefits should be treated differently from past benefits in terms of the carrier’s reimbursement rights.

“Because a beneficiary’s right to death benefits and a carrier’s right to reimbursement both flow through the covered employee, calculating the reimbursement right in relation to the total third-party recovery by a particular employee or his legal beneficiaries makes sense,” the court said. “Stated another way, given that past benefits are undisputedly treated collectively under subsection 417.002(a), future benefits should be treated the same way under subsection 417.002(b).”

State Office of Risk Management v. Carty, Texas, No. 13-0639 (June 20, 2014).

Susan R. Heylman, J.D., is a freelance legal writer and editor based in the Washington, D.C., area.

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