Bull Dung & Haggle

Workers’ Compensation Insurance Credit for Third-Party
Compromise and Release Claims

Workers’ compensation carriers are generally entitled to a credit against future benefits for an injured worker’s net recovery from a third-party settlement, preventing double recovery. This credit applies after attorney fees and litigation costs are deducted. The employer must prove their right to this credit, though they may lose it if they were concurrently negligent. 

Key Aspects of Third-Party Credit

• Definition: A third-party credit allows an employer or insurer to pause or reduce payments for workers’ compensation benefits (medical and indemnity) because the worker has already received compensation for the injury from a liable third party.
• Procedure: Once a third-party settlement is reached, the worker must inform the employer. The employer can then file a claim with the Workers’ Compensation Appeals Board (or equivalent state agency) to establish the credit.
• Net Recovery: The credit is typically based on the “net” recovery, which is the total settlement amount minus attorney fees and litigation costs.
• Employer Negligence: If the employer was partially responsible for the injury, their right to a credit may be reduced or eliminated.
• Notice Requirement: Failure to notify the employer of a third-party settlement can invalidate the release of claims and jeopardize future benefits. 

Common Scenarios

• Automobile Accidents: If a worker is injured by a negligent driver while on the clock, the worker can collect workers’ comp and sue the driver.
• Defective Machinery: A worker injured by faulty equipment can sue the manufacturer.
• General Contractor/Premises Liability: A subcontractor employee injured due to the negligence of a general contractor or property owner. 

Legal Considerations

• Concurrent Negligence: The employer’s credit is often reduced by the percentage of their own negligence.
• Allocation of Damages: Settlements that specifically allocate funds for non-recoverable damages (e.g., pain and suffering, which are not typically covered by workers’ comp) may affect the total credit amount.
• Global Settlement: Sometimes all parties (worker, employer, third party) negotiate a “compromise and release” to settle both the worker’s comp claim and the civil lawsuit simultaneously.
•  In many jurisdictions, a “Third-Party Compromise and Release” (C&R) allows you to settle both your workers’ compensation claim and your civil lawsuit against a third party (like a negligent driver) simultaneously. 
• The primary mechanism here is the employer’s right to a credit, which represents their ability to halt future benefit payments until you have exhausted the net proceeds from your third-party settlement. 
• Key Components of Third-Party Credits
• The “Net Recovery” Basis: The credit is typically based on your net recovery—the amount you keep after paying attorney fees and litigation costs.
• Halting Future Benefits: Once a credit is established, the insurance carrier can stop weekly indemnity checks and refuse to pay new medical bills until the credit amount is “used up” by what would have been those benefits.
• Employer Negligence: If your employer was partially at fault for the accident, their credit rights may be reduced or eliminated. They may have to pay a certain threshold of benefits (their “share” of the liability) before they can claim any credit.
• Mandatory Notice: You generally must notify the workers’ comp carrier before settling with a third party. Failing to do so can result in a loss of benefits or the carrier suing for breach of duty. 
• Strategic Considerations
• Simultaneous Settlement: Using a Third-Party Compromise and Release form (common in California) can resolve both cases at once, giving you a clear total recovery amount and limiting the employer’s future liability.
• Timing the Math: Settling the civil case first may cause the comp carrier to pause benefits while they wait to see the total recovery.
• Allocation of Funds: Portions of a settlement assigned to “loss of consortium” for a spouse may sometimes be excluded from the employer’s credit claim, though courts monitor this closely to prevent unfair circumvention. 
• Are you currently negotiating a settlement with a third party, or has the workers’ comp carrier already petitioned for a credit?