Fairness for Third-Party Claimants

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.

No Means No

A lawyer who once rejected a medical malpractice insurer’s offer of settlement could not later accept the offer, the Massachusetts Appeals Court has ruled in an unpublished opinion.  The court in Muise v. Verhave held that the lawyer’s rejection of an offer to settle the case for $1,000,000, particularly in light of subsequent negotiations for different amounts, precluded a later attempt to “accept” the rejected offer.

Muise involved a medical malpractice trial that occurred in April 2012.  During the trial, the plaintiff’s lawyer and the defendant’s insurer had multiple settlement discussions, involving both a possible “high-low” agreement–an agreement which capped the maximum recovery, while providing a minimum payment even if there was a defense verdict–and an outright settlement of all claims for an immediate cash payment.  These discussions culminated in the execution of a written high-low agreement while the jury was deliberating, providing that the plaintiff would receive a maximum payment of $4.5 million, and a minimum of $500,000.

The following day, with the jury still out, the plaintiff’s lawyer approached the insurance adjuster and told her that he was now going to “accept” the offer of $1,000,000 to settle the case which had been made before the high-low agreement was signed.  The adjuster responded that the offer had already been rejected, and was no longer available.  After the jury returned a verdict for the doctor, the insurer paid $500,000 in accordance with the high-low agreement, and the plaintiff sued to “enforce” the settlement agreement, seeking an additional $500,000 payment.

The Appeals Court held that the plaintiff was bound by the signed high-low agreement, and that her recovery was therefore limited to the $500,000 already paid.  Reviewing the “elementary” law of offer and acceptance, the court noted that a counteroffer–here the plaintiff’s counsel’s statement that it would take “more than a million” to settle the case–was equivalent to a rejection, and that after such a rejection, the plaintiff no longer had any power to accept the original offer.

As a matter of basic contract law, the Appeals Court clearly got it right.  But the case stands as an important reminder to lawyers that the act of asking for more than an offer in essence rejects the offer.  In many cases, if the new demand is rejected by the insurer, the plaintiff may still be able to settle for the original offer amount–but that depends on the insurer’s continued willingness to settle at that figure, and not to any legal right.  The situation in this case was aggravated by the fact that the plaintiff’s counsel had entered into the written high-low agreement after “rejecting” the outright settlement, and thus the insurer had little incentive to revive the rejected offer.

Yes, It’s Really Confidential

It’s quite common for personal injury lawsuits, among others, to be settled with a confidentiality agreement.  The precise terms vary, but usually the plaintiff is required to keep the financial terms, and sometimes even the existence, of a settlement confidential.  The usual provisions include permission for disclosure to family, financial advisors, courts and government agencies.

For many people, the confidentiality agreement isn’t that big a deal.  Most of our clients who receive a significant financial settlement have no desire to spread the news beyond immediate family members.  The confidentiality clause provides an easy excuse not to answer prying and personal questions.  The clause generally doesn’t prohibit them from talking about what happened to them–just that the case was settled, and more importantly, the amount of the settlement.  It’s generally the lawyers who–selfishly–hate these agreements, because they can’t brag to the media about their success.

But even though confidentiality clauses usually have little impact on the clients’ post-settlement lives, they need to be taken seriously.  A Boston College student and her family found out the hard way that indiscriminate blabbing can be extremely costly.

Patrick Snay, a former headmaster at a Florida private school, brought an age discrimination lawsuit against Gulliver Academy, the school where he’d worked for many years.   When he reached a successful settlement with the school, he signed a settlement agreement that included a confidentiality clause, prohibiting him from discussing the existence or terms of the agreement  with anyone except his wife and his advisors.  Understandably, he wanted to tell his daughter Dana, who’d been a student at the school.  And so he did.

But Mr. Snay either didn’t impress upon his daughter the seriousness of the confidentiality clause, or she didn’t listen.  Because within a few days, she’d posted this rather snarky comment on her Facebook page: “Mama and Papa Snay won the case against Gulliver.  Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.”  The school’s attorneys got wind of the post, probably through one of Dana’s 1200 Facebook friends, many of whom were students or former students at the school, and refused to pay Patrick Snay $80,000 he was supposed to receive under the agreement.

A Florida appellate court held last week that the school was entirely within its rights to withhold the payment.  The court noted that the agreement specifically prohibited the type of disclosure that both Patrick and Dana Snay had made.  Key to the court’s decision was a somewhat unusual provision in the confidentiality clause setting the penalty for unauthorized disclosure as the sum paid to Mr. Snay.  This type of penalty, called a liquidated damages clause, is rarely a part of confidentiality clauses, but it usually enforceable.

The Snays’ experience serves as a reminder to families who receive settlements that all members must be told about any confidentiality requirements, and must understand and comply with their obligations.  Even though the agreement technically precluded Patrick Snay from telling his daughter about the settlement, it was the ill-advised and widespread Facebook posting that truly caused the problem.

Read the Florida court’s opinion in Snay v. Gulliver Schools here.