Workers' compensation settlements: the next generation.

• Author: McConnaughhay, Jana E.
• Position: Florida

When the most recent changes to Ch. 440 took effect on October 1, 2001, claimants and employer/carriers in the workers' compensation system immediately had greater freedom to settle claims without the influence of a judge of compensation claims. Since that time workers' compensation claimants represented by counsel have had the ability to waive rights to workers' compensation benefits in exchange for a lump sum payment without the approval of a judge of compensation claims (JCC). (1) Furthermore, the parties have not needed to submit any documentation or support for the settlement agreement. (2) The settlement agreement now only requires approval by the JCC for claims of attorneys' fees and allocation of child support arrears, if any, and becomes binding at the time of execution, as would a general written contract. (3)

Since the JCC is no longer needed for approval of the settlement agreement, parties are not free to change their minds about the settlement after the paperwork has been signed or a formal agreement entered into. Further, employers are no longer given the statutory right to express their dissatisfaction with a settlement agreement within the workers' compensation court system. Likewise, at this time, when a settlement agreement is effectuated, any attempt to overturn that agreement would fall outside a workers' compensation context and would be interpreted and governed by contract law.

Although the new statutory provisions make settlement easier to enter into, they increase the likelihood of litigation between employers and carriers and attorney and client because the protection of JCC approval has now been removed. Practitioners settling cases within the workers' compensation system need to now be knowledgeable about the bases on which a settlement agreement can be overturned under general civil law in order to protect themselves from attack via ma]practice claims and to protect their clients from further litigation arising because of the settlement agreement. This applies to attorneys for both the employer/carrier and the claimant.

Under general civil law, courts will not set aside settlement agreements absent extraordinary circumstances. Although determining whether to set aside a settlement agreement rests on the sound discretion of the court, settlement agreements are highly favored under the law and will not generally be disturbed. (4) The court is reluctant to overturn settlement agreements and have held that they are especially unsuited for a liberal application of rules allowing rescission. (5) The language in Sponga v. Warro, 698 So. 2d 621 (Fla. 5th DCA 1997), is indicative of the court's hesitance in setting aside settlement agreements, especially those arrived at through the formal mediation process:

The decision to engage in mediation and to settle at mediation means that remedies and options otherwise available through the judicial system are foregone. The finality of [the settlement agreement] once the parties have set down their agreement in writing is critical. A party who makes the decision to engage in mediation and to settle is entitled to rely on the finality of the agreement. (6)

For settlement agreements effectuated under F.S. [section] 440.20(11)(c), the court will be even more hesitant to overturn the agreement because both parties were represented by counsel at the time of settlement. When a settlement agreement is entered into by sophisticated and knowledgeable persons in an arm's length transaction in which both parties received benefits, the agreement will remain enforceable despite the fact that one party emerges in a substantially better position. (7)

Despite the preference the courts have to keep settlement agreements intact; however, there are circumstances under which they can be overturned. A settlement will be deemed invalid if a court finds unjust enrichment, mutual mistake, fraud, or duress. Should the elements of these be proven and a settlement agreement overturned, the original attorneys involved have then exposed themselves to additional liability to the parties they had represented for failure to provide adequate representation with regard to the workers' compensation settlement along with the liability their clients may face because of the invalid settlement. This article will address the different ways in which a workers' compensation settlement can be overturned in order to provide some guidance to practitioners of the additional factors that must now be considered when settling a workers' compensation claim under the "new" law.

Unjust Enrichment

A settlement can be overturned when one party received a windfall recovery, which in good conscience he or she should not be allowed to retain. (8) In Sharff, an accountant agreed to refund overtaxed funds of former clients that were lost due to the accountant's negligence. The clients later recovered the full amount of their loss from the Internal Revenue Service. The court set aside the settlement due to the double recovery of the clients, under the theory of unjust enrichment. As in Sharff, any settlement attacked on unjust enrichment grounds would be very fact specific and would have to include a situation of double recovery or an unconscionable windfall by one of the parties. These types of situations are rare and settlements will generally be upheld despite the fact that one party is now in a substantially better position. (9)

This line of cases and an argument of unjust enrichment would be most applicable in two scenarios. The first of these are the instances in which a claimant receives money from a third party tortfeasor or...