Workers' Compensation Law, 0421 COBJ, Vol. 50, No. 4 Pg. 48

PositionVol. 50, 4 [Page 48]

50 Colo.Law. 48


Vol. 50, No. 4 [Page 48]

Colorado Lawyer

April, 2021

Untangling the Statutory Lien Scheme in Colorado Workers' Compensation Cases


This article discusses liens that practitioners commonly encounter in Colorado workers' compensation cases and suggests best practices for their recovery.

Consider the following fact pattern. A food delivery courier, who is a military veteran over the age of 65, severely fractures his ankle while running away from a vicious dog that broke loose at a multi-residential apartment complex. He files for workers' compensation benefits with the delivery company, but because it is unclear whether the courier is an independent contractor or an employee, the employer and its insurance carrier deny the claim.

The Department of Veterans Affairs (VA) pays for part of the courier's medical treatment, but primary health insurance begins to make medical payments for other aspects of the treatment. Meanwhile, the courier receives short-term and then long-term disability insurance payments.1 Eventually, the courier is separated from his job, and he applies for unemployment insurance. After several months of litigation, the courier's employer admits liability for the injury and starts paying benefits. Shortly thereafter, the courier begins receiving Social Security Disability Insurance (SSDI) benefits and is Medicare eligible. Though the employer admitted liability for the injury under its workers' compensation insurance plan, Medicare begins making payments for prescription medications. Under this very complex but common scenario, how are reimbursement payments to each entity handled?

In the scenario above, the payment of benefits under the Colorado Workers' Compensation Act (the Act)' may trigger the interests of multiple third parties, such as medical providers, the negligent dog owner, community homeowners' associations, property landowners, and the VA. Such third parties have express (statutory) or implied liens based on an employer's or insurance carrier's admission of liability for workers' compensation benefits. Depending on the lien and benefit at issue, recovery in the Colorado workers' compensation system—itself governed by the Colorado Office of Administrative Courts (OAC) Rules of Procedure2 and Colorado Division of Workers' Compensation (Division) Rules of Procedure[3] —may be subject to federal or state law. Given the lack of appellate court guidance on the application of these liens, practitioners must understand the lien landscape to attain the best outcome for their clients. Failure to do so may injure a client's rights and wallet.

This article discusses the most common liens that practitioners encounter in the Colorado workers' compensation system and offers best practices for their recovery.

Threshold Considerations

Practitioners must be on the lookout for possible lienholders in every workers' compensation case long before agreeing to a full and final settlement.4 The rising cost of healthcare makes this work all the more important. Lienholders, like most creditors, will aggressively pursue recovery, sometimes through means that violate the law. Defending against these actions may potentially cost attorneys and their clients substantial amounts of time and money. And the failure to identify and resolve outstanding liens could jeopardize the finality of the agreement or cause settlement funds to be reallocated, even after an administrative law judge (ALJ) approves a settlement.

When analyzing the existence of liens in workers' compensation cases, practitioners face a number of threshold issues. Namely, they must distinguish between a lien and an overpayment, evaluate the impact of Colorado's status as a "reverse offset state," and factor in the allowance for liens against permanent partial disability (PPD) benefits.

Liens versus Overpayments

The Act contains numerous provisions relating to both liens5 and offsets for overpayments,6 so it's essential to know the difference between a lien and an overpayment. A "lien" is the right of a third party who is otherwise not a participant in the workers' compensation proceedings.7 An "overpayment" is money a claimant receives that exceeds the amount that should have been paid, that the claimant was not entitled to receive, or that resulted from the payment of duplicate benefits.8 The employer or insurance carrier may assert an offset for overpayments against future benefits to which the injured worker may be entitled.9 Sometimes an overpayment can transform into a lien; for example, an overpayment of temporary disability benefits can be recovered by the withholding of permanent disability benefits.10 In this instance, the employer or insurance carrier is effectively asserting a lien against permanent disability benefits and may withhold payment of entitlement benefits rather than seek reimbursement.11 However, in certain circumstances an employer or insurance carrier cannot recover overpaid benefits.12

CRS § 8-42-113.5(1)(c) entities an employer or insurance carrier to request an order of repayment from an ALJ. If the employer or insurance carrier made an overpayment that the injured worker cannot repay immediately, the ALJ, in his or her discretion, may determine the amount of the overpayment and issue an order of repayment,13 considering the injured worker's financial situation and ability to repay the amount within a reasonable time period.[14] The employer and insurance carrier can then garnish or assert a lien against the injured worker's future wages.15

How "Reverse Offset" Works

Generally speaking, the Act does not allow unlimited double recovery.16 It allows for offsets to reconcile the injured worker's receipt of workers' compensation benefits and other benefits outside the Act.[17] In most states, the non-workers' compensation benefit takes the offset.18 In Colorado and seven other states, workers' compensation benefits take the offset unless the applicable law expressly states otherwise.[19] Thus, for example, if the injured worker is entitled to temporary total disability (TTD) benefits and SSDI, the employer and/ or insurance carrier pay a reduced amount of TTD benefits to offset the injured worker's receipt of SSDI.

The practical effect of reverse offset is that the employer and/or insurance carrier reap the benefits of the injured worker's receipt of both workers' compensation and non-workers' compensation benefits. During the pendency of the workers' compensation claim, practitioners should request disclosure of an injured worker's non-workers' compensation benefits via interrogatories or informal correspondence. Indemnity exposure analyses should take into account the existence of offsets and the time period for receipt of government entitlement benefits, including SSDI, federal retirement benefits, and/or unemployment benefits.

Liens against PPD Benefits

Workers' compensation benefits were immune from attachments to satisfy judgments20 until the General Assembly passed CRS § 8-42-124(6), which allowed for garnishment of indemnity benefits, except those for PPD.[21] A subsequent amendment, effective May 31, 2001, allows liens to attach to PPD benefits as well.22 CRS § 8-42-124(6) provides:

[B]enefits for permanent total disability and permanent partial disability shall be subject to wage assignment or income assignment as wages pursuant to section 14-14-102(9), C.R.S., and subject to garnishment as earnings pursuant to section 13-54.5- 101(2)(b), C.R.S., and subject to administrative lien and attachment pursuant to section26-13-122, C.R.S., for purposes of enforcement of court-ordered child support and subject to garnishment as earnings pursuant to sections 13-54-104(l)(b)(IV) and 13-54.5-101(2) (d), C.R.S., for purposes of enforcement of a judgment for a debt for fraudulently obtained public assistance, fraudulently obtained overpayments of public assistance, or excess public assistance paid for which the recipient was ineligible.

Practically speaking, this law allows for a greater chance of lien recovery. Depending on the nature of the injury and the injured worker's employment, the majority of his or her indemnity benefits may be in the form of PPD benefits.

The Lien Landscape

Liens for child support obligations, subrogation, short- and long-term disability payments, and payments made by non-governmental health-care providers, Medicare, Medicaid, and the VA arise pursuant to statutory or regulatory law.

Child Support Liens

The most common liens in Colorado workers' compensation claims are for child support. Under Colorado law, child support liens may attach to payments of temporary disability benefits,23 permanent disability benefits,24 and settlement funds.[25] These liens arise when a child support agency files a Notice of Administrative Lien and Attachment.26 The statute requires the agency to notify, in writing, the injured worker and the insurance carrier.27 Colorado child support liens continue for an indefinite number of 12-year periods.28

Child support payments are remitted to the Family Support Registry,29 and the payor should show any and all lien numbers on supporting documentation submitted with the payments.30 The Colorado Child Support Services Program (CSS) monitors lien payments and distributes the funds among the applicable liens.31 If the parties do not pay the lien or cooperate with CSS, CSS may intervene in the underlining workers' compensation matter.[32]

Unfortunately, injured workers don't always remember or disclose child support obligations, so these obligations may not come to light until settlement discussions begin or even after settlement. When disclosed during...

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