Worker’s compensation insurers cannot enforce their lien against third-party settlement proceeds that are allocated to a claimant’s pain and suffering damages, the Supreme Judicial Court recently ruled. In DeCarlo v. Suffolk Construction Co., Inc., the Court held that the compensation carrier could recover amounts paid for medical bills and lost wages only from settlement proceeds attributable to those categories of damages.
The law in Massachusetts and most other states bars employees from suing their employers for injuries suffered in the workplace, instead limiting them to worker’s compensation benefits. Those benefits, while usually paid immediately and for the duration of the disability, cover medical bills and part of the wage loss, but provide only limited compensation for loss of function and nothing at all for pain and suffering. The employee may still bring negligence claims against other persons or entities, and may recover full tort damages. If the employee recovers additional compensation, the worker’s compensation carrier has a right to be reimbursed for what it has paid.
For years, insurers have successfully insisted that their lien may be satisfied from the employee’s entire recovery, regardless of how it is allocated among the various elements of tort damages. This process sometimes leaves the employee with little to no compensation for general damages such as pain and suffering, because the lien consumes a large portion of the settlement or judgment.
The plaintiff in DeCarlo argued that the insurer could recover its payments only from amounts allocated to medical bills and lost wages, and that lien could not reach that portion of the settlement attributable to his pain and suffering. Relying on the language of the third-party recovery statute, G.L. c.152 s. 15, the Court agreed. The Court noted that the statute specifically referred to an injury “for which compensation is payable…” Since no compensation is payable for pain and suffering, the insurer could not enforce its lien against damages for that injury. The result is consistent with an earlier ruling of the Appeals Court in Hultin v. Francis Harvey & Sons, Inc., which recognized that the insurer could not enforce its lien against a spouse’s recovery for loss of consortium.
The Court noted that employees would not be able to “stack the deck” against the insurer by allocating all or even the lion’s share of a settlement to pain and suffering damages. The allocation of a settlement is subject to approval by a superior court judge or the Department of Industrial Accidents, at a hearing at which the insurer has a right to be heard. Plaintiffs and their lawyers should be prepared to justify the allocation of settlement proceeds to different categories.