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Mastering the Art of Settlement Negotiation

A. Determining The Right Time To Settle

I always wait to talk to my clients about settlement until I have a firm grasp of all of the relevant facts and also understand their personal life situation and what their goals are. I usually do not suggest discussing settlement when a surgery is pending, but rather after recovery is in sight. I encourage my clients to think about what they will do if we do settle the case, in terms of both income and occupying their time. Further, if people are unable to work at all into the future, I normally suggest that they apply for Social Security Disability so that they will have a monthly stream of income once the case is settled. This area is one in which many lawyers are confused by and therefore do not adequately address the needs of their clients. Workers’ Compensation is not affected by Social Security Disability Benefits other than the fact that if the person is considered Medicare eligible, there must be something set aside, or, if the person has a Medicare card or the settlement is over $250,000, the government must approve the Workers’ Compensation settlement first. If a person is receiving both Workers’ Compensation Benefits and Social Security Benefits, it is critical to have the Social Security office notified in writing that Workers’ Compensation Benefits are being paid. Social Security Benefits are then adjusted downward but can be increased once a settlement occurs. The Workers’ Compensation offset is then recalculated. Frequently, the right time to settle occurs once MMI has occurred and either the employer determines that it cannot use the claimant with diminished skills, does not want to incur potential liability, or there is enough bad blood between the two that both employer and employee want to terminate their relationship and separate. I usually encourage my client to have set ideas about what they are going to do with the amount of money that they receive. I will sometimes encourage people to pay off their mortgage if they are able to do that or to re-train or do something specific as opposed to just letting the money wither away. I do not give investment advice and I would encourage others not to as fiduciary responsibilities are then established which can be breached.

B. Lump Sum Versus Structured Settlements

As you probably know, lump sum is one chunk of money that is paid and that is the end of it. Structured settlements use annuities and can also use periodic lump payments to reduce the overall cost to the insurance company. These payments used to be used more frequently but are very seldom brought up anymore except for payment of medical expenses. If a lot of money is involved, I would recommend that you get an actuary to give advice on the relative pluses and minuses of using a structured settlement versus a lump sum. Also, if using a structured settlement, it is a good idea to have a guarantor and also to specify a minimum amount to be paid out in the event of the claimant’s premature death.

C. Negotiating Payment For Disputed Treatment Costs

If the treatment costs are a lot, the employer frequently does not want to be stuck paying for them, especially if they cannot use the Pennsylvania schedule. In that case, I will sometimes suggest that the client use their own health insurance if that is available, and the employer reimburse the individual for out-of-pocket expenses. This approach is predicated on a judge issuing a decision saying that the treatment was not reasonable, necessary, or related to the work injury. Do be very careful about not allowing your client to use medical assistance or Medicare to pay for the disputed costs. A judge’s decision saying that the treatment was not reasonable, necessary, or related should protect you and the client, but I would be very careful on this area. I have seen Medicare contacting people five or 10 years later over disputed medical treatment. Also, if the treatment is for the work injury, it could be considered fraud, and both the attorney as well as the client could be held civilly and criminally liable. Cost shifting in this area has become very treacherous and I would urge you to obtain a doctor’s opinion stating that the treatment was not reasonable, necessary, or related, prior to submitting it to the judge if you were going down this path.

D. Future Medical Expenses

Generally, settlements now provide that medical expenses are paid up until the date of the settlement hearing and not thereafter. This timeline can be negotiated, and if your client needs a specific treatment or a specific relatively minor surgery with follow up physical therapy, this note can be included in the settlement. Usually, the employer and insurance company want to limit exposure to six months and may also be quite specific about the procedures that are covered. This approach can be useful when the client is moving out of state, or if they are not sure whether they want to go ahead with a certain procedure but do need to settle their case otherwise. I encourage clients to look at their options regarding medical expense coverage, including shopping online at

E. Lost Wages And Lost Earning Capacity

One of the critical aspects in determining the amount that you are both going to ask for as well as the targeted settlement number are the lost wages and lost earning capacity. Lost wages can be more easily calculated by considering the average weekly wage and the Workers’ Compensation rate. Keep in mind that some clients are at the maximum Workers’ Compensation Benefit, and therefore you should be looking at the actual average weekly wage as opposed to the Workers’ Compensation Benefit. Lost earning capacity goes to the persons expected future life and the diminished amount of money which they will be able to generate as a result of the work injury. Vocational experts can sometimes be useful in this, although employers use them more than the claimant’s counsel. Generally, when claimant’s defense and judges are considering the value of a case, it is frequently a multiple of the Workers’ Compensation Benefits. More minor cases where the person has fully recovered, generally results in a one- to two-year settlement, those in the middle two to three years, and for really severe and permanent injuries, five to six years of benefits is not out of the ballpark. In that last category, I would include severe head injuries, double amputations, severe burns, etc.

F. Factoring In Liens

It is necessary to identify all liens, which may include medical assistance, Blue Cross Blue Shield, doctor’s offices, and also wage advancement companies such as Bridge Loans. Failure to honor liens can result in action being taken by the Department of Welfare and it is something that you want to avoid. Please note that liens can be negotiated down and that is also true for subrogation liens in which the Workers’ Compensation carrier wants to be fully reimbursed for the amounts that they have paid out when they are anticipating either an auto or third party payout. Please keep track as it can come back to bite you in the future if you do not.

G. Minimizing Social Security Offsets

Please don’t forget to include Social Security offset language in each and every Workers’ Compensation settlement that you are involved with. Even if you don’t think that the person is eligible for Social Security Disability, it is important to include this language because at some point in the future the individual may be, and it is most definitely in the client’s interest to have this language. I’ve enclosed the calculations on the offset language which is generally used in paragraph 13 of the C & R document. The reasons that the Social Security offsets are important are that if you do not have them, the entire Workers’ Compensation settlement is used up before the person will get their Social Security Benefits. If the language is included, the person will immediately get almost all of Social Security Disability Benefits but for a small set off. Be sure to inform the client in writing of the need for giving Social Security a copy of the settlement documents and decision.

H. Medicare And Medicaid Set-Aside Considerations

Most employers and insurance companies take the position that there should be Medicare and Medicaid set-aside regardless of the amount of the settlement. This position is not universally the case nor is it required by the law. As set out above, only if the person has a Medicare card or the case is worth $250,000, does there have to be approval by the Medicare department of the Social Security Administration. However, there may be requests for set-aside where there is ongoing medical treatment that will be continued. I urge my clients to put that money in a separate bank account and keep track of how it is spent together with receipts to document that the care was for treatment of the work injury. Once that money that has been set aside has been used up, the claimant may then request Medicare and/or Medicaid coverage for treatment of the work injury.

I. Using The Affordable Care Act In Settlement Negotiations

This act is becoming increasingly common as the claimant may have other health issues which need to be addressed as well as ongoing treatment for the work injury. One of the changes in the Affordable Care Act is that prior medical conditions cannot be excluded. I have suggested frequently to my clients that they look at their options on to consider what kind of coverage they and their spouse may need and how much it will cost them. This suggestion is particularly the case where the claimant is surrendering his or her job in exchange for a settlement. It is important to become familiar with the requirement of the Affordable Care Act as there are only a few windows of opportunity each year to enroll in coverage. Please consider this approach for your clients when discussing their future after settlement.

J. Considerations In Arriving At A Settlement Analysis

I’ve used a memo that we use in our office to formulate a settlement demand. In order to ensure consistency and careful consideration of all relevant factors, each of the attorneys in my office prepares a memo which is submitted to me. I then respond with what I consider to be a good targeted number together with the initial opening demand. The attorney then discusses this number with the client, gets his or her authorization, and communicates it to the defense attorney. When the defense attorney responds, we speak with the client but also memorialize it in writing. I usually send what’s called a checkbox letter in which I ask the client to either accept the settlement minus the fee plus the litigation costs, reject it, or counteroffer. I send a stamped, self-addressed envelope and ask them to sign and date their response so that there is complete transparency in the transaction. This process goes on until the case is settled, in which case I then send a letter memorializing the terms of the settlement both to the defense attorney and to the claimant. It is important for the claimant to understand what the terms are, as this standard is what the judge considers in whether to approve the settlement or not. Further, I always tell my clients that this is their life, and five years from now, I don’t want them regretting what they have done. I would also suggest that you take time in explaining the ramifications of the settlement. Also, if the client does not want to settle or settle the figure that is the highest that the insurance company will go, it is very important to put this in writing. In the off chance that the case is lost, you don’t want the claimant then demanding the settlement money and thinking that they can get it, or blaming you for not explaining things. I think it helps both the client and the attorney to be very specific in writing and to memorialize any critical conversation in writing. I want my clients to understand what has happened and why, and to be satisfied with it. That approach leads to more business referrals and happier clients.

Turn to us at Marzzacco Niven & Associates. You can reach us by phone at 717-260-3580. You can also reach us via email.