Legal Lines


Third Party Settlements Cut Off Workers’ Compensation Liability

By Sharon Funcheon Murphy - Lewis Wagner, LLP
| Date: 05/01/2010

After a series of rather confusing and inconsistent rulings by the Court of Appeals over the last few years, the Indiana Supreme Court has now clarified the application of Indiana Code 22-3-2-13 to mean what it says!  The case of Smith v. Champion Trucking Co.,    — N.E.2d — (Ind. 2010), holds that if an employee settles a third party claim without the employer’s consent, the employee’s workers’ compensation claim is thereby barred.  In addition, the court held that the third party tortfeasor is released from liability for the claim based solely on the release provided by the employee, and the employer may not initiate a separate claim after settlement occurs.

Mr. Smith, an employee of Champion Trucking Company, was in a work related motor vehicle accident due to the negligence of another driver (Bittner).  He received medical benefits under workers’ compensation for his injuries.  However, he continued to work while in treatment after the accident so no lost wage benefits were paid.  He filed an Application for Adjustment of Claim against Champion, and he sued the other driver (Bittner) in civil court for damages.

Mr. Smith eventually settled his civil claim against Bittner for $10,342, and notified the workers’ compensation carrier of the settlement.  Champion’s lien for medical expenses paid of $4,342.32 was reimbursed, less attorney fees, out of the third party settlement.

Thereafter, Mr. Smith obtained the evaluation of a neurosurgeon and was given a 19% whole body PPI rating, worth $26,500, under the Workers’ Compensation Act.  When Mr. Smith sought payment of the PPI rating from the Board, Champion opposed any further payment under Ind. Code 22-3-2-13, which states:

22-3-2-13.  Liability of third person – Subrogation of employer – Lien on award to employee – Notice to employer if employee sues – Settlements – When action barred – Costs – Attorney fees – Release and satisfaction.
Whenever an injury or death, for which compensation is payable under chapters 2 through 6 of this article shall have been sustained under circumstances creating in some other person than the employer and not in the same employ a legal liability to pay damages in respect thereto, the injured employee . . . may commence legal proceedings against the other person to recover damages notwithstanding the employer’s . . . payment of or liability to pay compensation . . ..  In that case, however, if the action against the other person is brought by the injured employee . . . and judgment is obtained and paid, and accepted or settlement is made with the other person, either with or without suit, then . . . the liability of the employer . . . to pay further compensation or other expenses shall thereupon terminate…

Based on this language in the Act, the Original Hearing Member dismissed the claim, but the Full Board remanded for a hearing.  After the hearing, the case was again dismissed and the dismissal was upheld by the Full Board.

The Court of Appeals reversed in its decision,  Smith v. Champion Trucking Co.    901 N.E.2d 620 (Ind.Ct.App., 2009) and ruled that the employee should be able to pursue additional worker’s compensation benefits under these facts.  The case was then appealed to the Indiana Supreme Court which vacated the Court of Appeals decision and affirmed the Board’s ruling that workers’ compensation benefits were terminated based on the third party settlement.

The Indiana Supreme Court, in making this ruling, noted that the value of the worker’s compensation PPI rating exceeded the third party settlement.  It found, however, that there may be tactical or financial reasons why the employee’s attorney chose to pursue the claim in this manner, and the statutory bar to further compensation does not lift based on whether or not that decision was a good one for the employee.  The court noted, as well, that its ruling will avoid the need for “satellite litigation over the adequacy of the settlement” and that the “burden” of notifying the worker’s compensation carrier of settlement discussions and securing its consent to settlement is not too difficult to fulfill.

This decision should do much to clarify the application of the Act in situations where there are both worker’s compensation and civil claims pending, both for employees and employers.