While the exact fact pattern of R.M. v. Second Injury Fund 943 N.E.2d 811 (Ind.App. 2011) may be unusual, it nevertheless provides a valuable lesson on how a settlement decision could impact the integrity of the Second Injury Fund.

In November, 1999, Ronald Mayes was seriously injured, and permanently disabled, at work for Main Tech when his arms were pulled into a conveyor belt he was cleaning. He pursued claims against three non-employer defendants for damages, and negotiated confidential settlements with each of them. One of the terms of the settlement was that his employer, Main Tech Corporation, would continue to pay him all statutory workers’ compensation benefits as if no third party settlement had occurred. That “agreement” was reduced to writing and submitted to the Board for “approval” even though it did not compromise or reduce Mr. Mayes’ benefits in settlement of his claim.

Unfortunately, Main Tech’s insurance carrier, Reliance, went through bankruptcy before the employee had received 500 weeks of benefits. The Indiana Guaranty Fund provided benefits thereafter until those benefits exceeded their maximum liability of $100,000. Main Tech then stepped up and continued lost wage and medical benefits until it also went into bankruptcy in October 2004 after Mr. Mayes had received a total of 264 weeks of benefits from the date of injury. Mr. Mayes then petitioned for entry into the Second Injury Fund.

The original Hearing Member, the Workers’ Compensation Board and the Court of Appeals ruled that entry into the Second Injury Fund was prohibited because of the third party settlement that had occurred. However, the Indiana Supreme Court in the decision entitled Mayes v. Second Injury Fund, 999 N.E.2d 773 (2008) reversed that decision. The Court stated:

In the future, if the Board is concerned about double recovery, it should refuse approval of agreements involving confidential settlements or insist that the agreement contain a provision releasing the Second Injury Fund from liability.

Based on the ruling by the Supreme Court, Mr. Mayes requested payment of benefits dating back to the end of benefits received from Main Tech. The Second Injury Fund, however, took the position that Mr. Mayes could only gain access to additional benefits after expiration of the 500 weeks base period from the date of injury. Mr. Mayes objected and litigation ensued as to when his entry to the Second Injury Fund should occur.

In the recently published decision of R.M. v. Second Injury Fund, the Indiana Court of Appeals has now ruled that Mr. Mayes need not wait the 500 weeks normally required before gaining access to the benefits of the Second Injury Fund, despite rulings to the contrary by the Hearing Member and the Full Board. The Court reasoned:

While we acknowledge that under Indiana Code section 22-3-3-10, R.M. is entitled to receive worker’s compensation benefits for 236 more weeks, we conclude that R.M. has effectively received the maximum benefits possible and, thus has exhausted his right to receive worker’s compensation benefits. Having concluded that R.M. has effectively exhausted his right to receive worker’s compensation benefits, we believe that the legislature intended that an individual under these specific circumstances shall be considered to have exhausted their right to worker’s compensation benefits, thus making them eligible to recover additional benefits from the Second Injury Fund. Any other interpretation would result in the unjust and absurd result of R.M. being left without the assistance of the additional benefits to which he is entitled for a period of 236 weeks.

(emphasis added) There is no mention in this most recent decision of the unknown amount and impact of the third party settlement between Mr. Mayes and the three non-employer defendants.

These two appellate decisions on this one case have undoubtedly led the Board to more closely scrutinize all cases involving stipulations that the injured employee is permanently and totally disabled. Even though the Board is presented with only limited information at the time a compromise settlement is submitted for approval, the Board’s decision to approve a settlement could have significant monetary impact on its oversight of the state’s Second Injury Fund.

While the Board is now compelled to more carefully scrutinize settlements of this kind, employers and their carriers, who also share in the cost of benefits paid by the Second Injury Fund, should also be wary of negotiating settlements that potentially have far-reaching future financial implications for the Indiana Second Injury Fund.