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Carriers Waiver of Overpayment in Subrogation Settlement Must be Specifically Negotiated

Milazzo v. Total Longterm Care, Inc, (ICAO June 11, 2014)

Under Colorado Law, the payment of workers compensation benefits for or on behalf of the claimant automatically assigns a cause of action against a third-party tortfeasor to the workers compensation carrier. A subrogation interest exists in favor of the carrier against the proceeds of a third-party settlement or judgment.

In the Milazzo case, the claimant had been overpaid temporary total disability benefits because she was actually working during a portion of the time that she was receiving TTD. This was obviously an overpayment and was found to be so by the ALJ. After offsetting temporary partial and permanent disability benefits owed to the claimant against the overpayment, there was still a remaining overpayment of $8,451.08.

The claimant had brought a claim against the third-party tortfeasor who caused her injuries. The workers compensation carrier asserted a lien of $44,739.39 which represented medical and indemnity benefits paid in claimant's case. In settling the third-party case, the parties entered into an agreement regarding the proceeds of the settlement with the claimant receiving $13,000, the carrier receiving $18,000 and the claimant's former attorney receiving the remainder of the $50,000 settlement. After the settlement, the carrier continued to assert that the claimant had been overpaid $8,451.08 and that it was entitled to recoup that overpayment from future benefits that may be owed to the claimant.

The claimant asserted that the overpayment was included as part of the resolution of the subrogation lien. The ALJ heard testimony from the carrier's subrogation attorney who stated that she never engaged in any conduct which conveyed the carrier's intent to surrender the right to the overpayment as part of the third-party settlement, and that, in fact, she had no authority to waive the overpayment. She testified that if the carrier had intended to waive the overpayment she would have sent a confirming letter, which she had not done. The ALJ concluded that the carrier's agreement to accept $18,000 to satisfy its subrogation lien against the third-party settlement did not include the waiver of its right to recoup the overpayment against payment of future workers compensation benefits owed to the claimant.

The ICAO agreed with the ALJ and cited the Colorado Supreme Court's decision in Johnson v Industrial Commission, 716 P.2d 1140 (Colo. 1988), for its ruling that there must be a voluntary, knowing and intelligent waiver of the subrogation right. The ICAO ruled that the existence of a waiver was a finding of fact for the ALJ that it would not disturb that finding on appeal, there being sufficient evidence in the record for the ALJ to conclude that no such waiver occurred in the third-party settlement.

Claimant's attorneys as well as attorneys representing injured workers claims against negligent third parties are cautioned to not assume anything is included in the settlement of a subrogation lien unless it is carefully spelled out in settlement documents. The amount that the claimant recovers from a third party, even after paying off the subrogation lien for workers compensation benefits paid thus far, can be used to offset future benefits. Metcalfe v. Bruning Division of AMI, 868 P.2d 1145 (Colo. App. 1993). Thus, the settlement of a negligent action, unless carefully crafted and documented, could leave a claimant without medical care for the underlying injury because the cost of it is being offset by the workers compensation carrier against what the claimant received in the negligence action. This could also leave the claimant's attorney in a difficult position.

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