Settlement Procedure in Workers' Compensation Claims, 0717 COBJ, Vol. 46, No. 7 Pg. 40
| Author | JOSEPH W. GREN AND JENNA ZERYLNICK, J. |
JOSEPH W. GREN AND JENNA ZERYLNICK, J.
This article explains the unique procedural requirements governing settlement of Colorado workers' compensation claims. It outlines relevant legal authority and provides practical guidance regarding settlements in the workers' compensation context.
The Colorado Workers' Compensation Act (the Act) has permitted settlement of workers' compensation claims since at least 1919.[1] As in civil cases, the Act and accompanying Division of Workers' Compensation (DOWC or Division) rules permit both represented and pro se parties to settle workers' compensation claims, though there are procedural safeguards unique to the workers' compensation system. Similar to legal matters outside of the workers' compensation context, settlement is often an attractive resolution for parties, as settlement can expedite finality and reduce overall risk and exposure. Legal authority for settlement of workers' compensation claims lies in statute, case law, and the Workers' Compensation Rules of Procedure (WCRP). DOWC recently amended and renumbered the procedural rules related to settlement effective April 15, 2016, and September 14, 2016.
This article provides a practical overview of the settlement procedure for Colorado workers' compensation claims and highlights recent changes to administrative rules.
Authority for Settlement of Workers' Compensation Claims
The settlement provisions are codified in the Act at CRS § 8-43-204, which was enacted in 1990. Pursuant to CRS § 8-43-204(1), "[a]n injured employee may settle all or part of any claim for compensation, benefits, penalties, or interest." The statute requires the DOWC director to adopt rules as necessary to implement the procedure for review and approval of settlement documents.[2] The statute has requirements for settlement agreements that are not found in the workers' compensation rules. Parties must follow these requirements to avoid liability and penalties.3
CRS § 8-43-204(1) provides that if a settlement agreement by its terms provides that a claim shall not be reopened, the settlement will not be subject to the reopening provisions in the Act (discussed in greater detail below). The only grounds for reopening are fraud or mutual mistake of material fact. Written notice of the settlement agreement must be provided to the employer when the settlement amount is $75,000 or greater.4 Settlement agreements must be approved in writing by an administrative law judge (ALJ) or the DOWC director, and the settlement agreement must be filed with the Division as part of the injured employee's permanent record.5
The Act expressly limits the types of liens or garnishments that attach to workers' compensation settlements.6 The settlement statute grants priority of settlement awards to child support garnishments, child support liens, and garnishments for fraudulently obtained public assistance or overpayment of public assistance.7 If an employee owes child support and a garnishment has been filed pursuant to CRS § 13-54.5-101, or the state child support enforcement agency has filed a notice of administrative lien and attachment with the insurer, all proceeds of any settlement award are subject to the garnishment or lien.8 Proceeds up to the amount of the garnishment or lien must be paid as directed on the notice to the obligee or to the state child support enforcement agency9
CRS § 26-13-122 contains the procedural requirements for administrative liens and indicates that an administrative lien for collection from workers' compensation benefits for child support takes priority over most other garnishments, liens, and wage assignments.[10] Noncompliance with a notice of administrative lien subjects a workers' compensation insurer to liability and sanctions.11 However, the administrative lien statute also protects insurance companies by providing that compliance with an administrative lien will not subject the person, insurance company, or agency providing workers' compensation benefits to liability to the obligor for wrongful withholding.12 Prudence dictates that attorneys representing insurers and employers should conduct a child support lien search for the employee before issuing payment of a settlement award, as failure to comply with a lien may result in significant liability. In addition to settlements, workers' compensation benefits are subject to garnishments under CRS § 13-54-104 or 13-54.5-101 when an employee owes a debt as a result of a judgment for fraudulently obtained public assistance or overpayments of public assistance.
Amended WCRP 9-9
WCRP 9-9, "Settlement Procedures," establishes the specific uniform substantive and procedural settlement requirements for all workers' compensation claims settled in Colorado.13 Previously, the settlement procedure rules were contained in WCRP 7-2, "Content and Approval of Settlement Agreements."14 On September 14, 2016, the Division effectuated updates to Rule 9-9 and incorporated the settlement procedures contained in Rule 7-2.15
WCRP9-9(A),whichreplacedWCRP7-2(A), requires that "when the parties enter into a full and final settlement of a claim, they shall use the form settlement agreement prescribed by the Division of Workers' Compensation." The general template settlement form is available on the Division's website.16 The document contains several clauses explaining which benefits a claimant waives by entering into the settlement as well as an advisement on the limited grounds permitting a party to request a reopening of the settlement. The parties may not alter the form unless the remainder of the rule permits the modification. In fatality cases, the parties are not required to use the Division's template documents.17
The rule contains new provisions in WCRP 9-9(B) through (E), which outline when the parties may reference other documents outside of the workers' compensation settlement. Consistent with the rule, the template settlement document contains paragraphs 9(A), 9(B), and 9(C) where the parties can incorporate additional language into the document. Rule 9-9(B) permits the parties to draft into the settlement by operation of language in paragraph 9(A) any terms "that are both specific to that agreement and involve an issue or matter that falls within the Workers' Compensation Act." For instance, paragraph 9(A) may contain language whereby the respondents agree to pay for a specific medical bill or service as part of the settlement.
Rule 9-9(C) permits the parties to reference exhibits that relate to the claim within paragraph 9(B). Because workers' compensation settlements ordinarily encompass a settlement and compromise for medical treatment, bills, or future care, Medicare may be a relevant aspect of the claim. The Division recognizes the practical role Medicare set aside agreements play in the settlement process and inserted specific language in Rule 9-9(C) noting that " [t]hese exhibits may include a workers' compensation Medicare set-aside agreement (WCMSA) or other information related to the workers' compensation claim." This language, along with the language in Rule 9-9(D) discussed below, recognizes that a WCMSA is part of the actual settlement and its terms can be enforced under the provisions of the Act.
Paragraph 9(C) in the settlement form also allows the parties to reference and list other agreements that may be attached to the settlement. Rule 9-9(D) notes that "these other written agreements may include an agreement involving employment, or a waiver of a claim for bad faith." Before the recent rule changes, it was possible for the parties to reference these agreements, but it was unclear whether such agreements were part of the workers' compensation settlement. The Division has affirmatively recognized that agreements referenced in paragraph 9(B) are not part of the form settlement: Rule 9-9(E) states that"[a]ny exhibits and/or agreements attached to a settlement agreement pursuant to subsection (D) above are included for the convenience of the parties and shall not be reviewed by the Division. Approval of the settlement agreement does not constitute approval of any attachments to the settlement agreement."
Furthermore, Rule 9-9(F) states that "[t]he monetary amount of the settlement as reflected in the written...
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