:: Workers’ Compensation Settlements Vulnerable To Recoupment

While the Court is not unsympathetic to Defendants, it recognizes that the Fund has a fiduciary responsibility to enforce its lien on the proceeds of Defendants’ workers’ compensation settlements in order maintain the solvency of the Fund for the benefit of all participants. This unpleasant episode, which results in Defendants getting less money for their injuries due to the required payback, could have been avoided had Plaintiff been invited to the settlement table before the workers’ compensation cases were finalized in negotiation.

Graphic Communications National Health and Welfare Fund v. Tackett, Slip Copy, 2008 WL 2020504 (S.D.Ill.) (May 09, 2008)

In a very well-reasoned opinion, the district court in Tackett held that workers’ compensation awards are subject to ERISA health plan reimbursement rights. The case at once both exposes a common evasive practice employed by workers’ compensation carriers and debunks the spurious legal pretext offered to justify the scheme.

The facts are very familiar to lawyers that have a workers’ compensation practice.

Employee is injured in an occupational setting. Employee files a workers’ compensation claim. Carrier denies claim (perhaps with a helpful suggestion that the employee submit the claim to the employees health insurance plan.)

Meanwhile . . .

Group health plan receives notice of the denial and pays claims. Thereafter, employee obtains counsel and the carrier makes a compromise offer.

That’s a general description of the facts in Tackett, albeit with some poetic license.

Suit For Reimbursement

When the Fund learned of the settlements in Tackett, it filed suit to obtain reimbursement of medical expenses paid.

Graphic Communications National Health and Welfare Fund (“the Fund”) is an employee welfare benefit plan providing medical, hospital and surgical expenses under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001, et seq. The Fund filed suit in June, 2004, in the Circuit Court of Cook County, Illinois, and thereafter transferred this action to the Circuit Court of Marion County, seeking reimbursement for benefits that it paid to Defendants, Lee W. Tackett a/k/a/ Donald L. Tackett (“Tackett”), Linda Hiestand (“Hiestand”) and Helen Irwin (“Irwin”).

In February, 2007, Defendant, Travelers Indemnity Company of Illinois n/k/a Travelers Property Casualty Company of America (“Travelers”), removed the action to this Court.

Carriers Bail Out

The original defendant group narrowed considerably:

In March, 2007, Defendants, Travelers and Gallagher Bassett Services, Inc., moved to dismiss, asserting that they were neither a party to, nor a fiduciary of, the Fund, and that, therefore, they had no duty to the Fund to protect its contractual subrogation interest. On September 4, 2007, the Court found that Travelers and Gallagher were not liable to reimburse the Fund with the proceeds of their co-defendants’ workers’ compensation claims and granted their motions to dismiss.

ERISA Exemption?

The defendants pinned their hopes on an Illinois statute that provides:

Defendants contend the Plaintiff’s claim fails under the Illinois Workers’ Compensation Act, 820 ILCS 305/21 (“IWCA”), which provides, “No payment, claim, award or decision under this Act shall be assignable or subject to any lien, attachment or garnishment, or be held liable in any way for any lien, debt, penalty or damages….”

ERISA does exempt certain plans in the workers’ compensation context from its reach,

“The provisions of this subchapter shall not apply to any employee benefit plan if … (3) such plan is maintained solely for the purpose of complying with applicable workmen’s compensation laws or unemployment compensation or disability insurance laws[.]” 29 U.S.C. § 1003(b)(3).

but this was not the context intended to be exempt:

However, the United States Supreme Court refused to give this exemption a sweeping interpretation by holding that ERISA preempted a District of Columbia law requiring employers to continue health care coverage for employees eligible for workers’ compensation benefits. Greater Washington Bd. of Trade, 506 U.S. at 126-27. The Court rejected the District’s contention that the law was exempted from preemption because it related to the District’s workers’ compensation plans. The Court noted that whether the law related to a workers’ compensation plan was irrelevant where the law also “relates to” a plan subject to ERISA.

Reimbursement Claims Upheld

The district court upheld the fund’s claim to reimbursement, recognizing the gambit for what it was, stating:

Defendants were on notice of the lien and agreed to repay the Fund for any benefits received. The plain language of the plan requires repayment as does the supplemental agreement Defendants signed in order to receive the benefits. Instead, they chose to ignore the lien, gambling that they would not be required to repay the Fund.

While the Court is not unsympathetic to Defendants, it recognizes that the Fund has a fiduciary responsibility to enforce its lien on the proceeds of Defendants’ workers’ compensation settlements in order maintain the solvency of the Fund for the benefit of all participants.

This unpleasant episode, which results in Defendants getting less money for their injuries due to the required payback, could have been avoided had Plaintiff been invited to the settlement table before the workers’ compensation cases were finalized in negotiation.

Note: The court also rejected a pretext commonly offered in these settings – that the liability was disputed and no money was actually paid for medical expenses. A lengthy, bit interesting excerpt:

At oral argument, defense counsel represented that none of his three clients received, as part of their workers’ compensation settlements, any money for medical expenses and therefore Plaintiff should not receive reimbursement for medical expenses that it advanced to Defendants. A look at the actual settlement documents, or “pink sheets” as they are called in the vernacular, belies this representation.

The terms of the Illinois Industrial Commission settlement contracts signed by the individual Defendants vary. See Doc. 59. Tackett’s contract is “a compromise settlement of claims filed and unfiled, which were disputed as to all issues,” but “[n]o portion of this settlement represents compensation for lost time or medical benefits.” Id. Yet the very next sentence reads: “Respondent shall have no responsibility for medical expenses….” Id. The front page clearly indicates the medical bills have not been paid. So it is evident that the contract sets up an inconsistency that can only be explained as a concerted effort by the employer to avoid paying medical bills and the petitioner’s agreeing that he received no money for medical bills.

Such a contract, given that Tackett received $105,000 for injuries to his spine, left leg, right arm and left arm, is overreaching. Obviously, he had medical bills that were unpaid and that related to his workers’ compensation claims, or he would not have been paid six figures. The sole reason for the insertion of the inconsistent language was an effort to defeat Plaintiff’s lien rights.

The terms of Hiestand’s settlement states more simply that she accepted a lump sum “as full, final, and complete resolution of all disputed matters[.]” Id. Like Tackett, Hiestand’s medical bills were unpaid and therefore in dispute. So the $34,887.90 she received included consideration for the bills.

Under the terms of Irwin’s settlement, she accepts a lump sum “in full and final settlement of all claims[,]” including “all claims for past or future medical, surgical or hospital treatments.” Id. It could not be more clear that her settlement of $81,321.75 included payment for medical bills, contrary to counsel’s representation to the Court

Moot Point – Regardless, the plan language was broad enough to reach the settlement proceeds. The court observed:

Whether the workers’ compensation contracts included payment for medical benefits or not is of no moment because the SPD plainly states “any recovery whatsoever,” regardless of whether some or all of the amount received was for medical benefits. Inarguably, Defendants signed supplemental documents, as a condition to receiving benefits, that included the following clause, “I understand that the Fund must be reimbursed for medical benefits or any benefits paid as a result of an injury or illness if any recovery is made for that injury or illness.” See Doc. 53, Exhibit D, Hiestand, signed 4/26/2000; Exhibit E, Tackett, signed 7/20/2000; Doc. 54, Exhibit A, Irwin, signed 6/4/01..

See also – This issue touches on a note I previously penned (Obstacles To Real Health Care Reform – A Sequel) on the subject of rising health care costs:

#4 Cost-Shifting To Health Plans

One of the more insidious ways that health care costs are unjustifiably increased takes place in a quite silent and unobtrusive manner.

  • When workers’ compensation carriers refuse to pay legitimate occupational claims, the comp carriers routinely direct the claimants to file claims on their own group health plans.
  • If suit is filed against a workers’ comp carrier, and the comp carrier settles, the comp carriers never inform the health plans. Those funds are therefore unreimbursed to the health plan though the claim is actually adjudged occupational. Since the health plan rarely discovers the reversal of the comp carrier’s position, the costs are effectively shifted from the comp carrier to the health plan.