Brief Overview of the Interplay of Workers’ Compensation Claims and Third-Party Claims

Chapter 97 of the North Carolina General Statutes is the Workers’ Compensation Act.  This law controls all aspects of workers’ compensation claims.  When an employee is entitled to workers’ compensation benefits for an on-the-job injury and the injury was caused by a third-party, the injured employee may have a claim against the third-party in addition to a workers’ compensation claim.  The “third party” is a person who is not associated with the employee’s job.  One of the most common on-the-job injuries that are caused by a third party occurs when the employee is injured by someone else’s negligent driving.  This is a brief overview of the laws governing the interplay of third-party claims when there is a workers’ compensation claim.

If the injured employee makes a recovery against the third party by either a settlement or going to court, the rights of the employee and employer with regards to such a recovery are governed by the provisions of N.C.G.S. § 97-10.2.  Subsection (h) of N.C.G.S. § 97-10.2 provides that the employer has a lien against the recovery for all benefits paid by the employer’s insurance carrier.  This includes the medical benefits and the indemnity benefits, which are 2/3 of the worker’s average weekly wage and which are subject to a cap.  If the case goes to trial, the amount of the employer’s lien is admissible into evidence and there is a specific jury instruction that is given to the jury which explains that the lien must be paid back to the workers’ compensation carrier.

North Carolina General Statute § 97-10.2(b) and (c) control which party, as between the employee or the employer, may pursue a third-party claim.  Pursuant to § 97-10.2(b), the employee has the exclusive right to pursue the claim in the first 12 months after the injury.  The provisions of § 97-10.2(c) state that after the first 12 months following an injury, either party may pursue the claim.  Subsection (c) also states that for 60 days prior to the expiration of the statute of limitations, the exclusive right to settle or institute proceedings reverts solely to the employee.  The ability of the applicable party under subsection (c) to settle with the third party is limited by N.C.G.S. § 97-10.2(h).  This subsection states in pertinent part:

Neither the employee or his personal representative nor the employer shall make any settlement with or accept any payment from the third party without the written consent of the other and no release to or agreement with the third party shall be valid or enforceable for any purpose unless both employer and employee or his personal representative join therein; provided, that this sentence shall not apply:

(1)        If the employer is made whole for all benefits paid or to be paid by him under this Chapter less attorney’s fees as provided by (f)(1) and (2) hereof and the release to or agreement with the third party is executed by the employee; or

(2)        If either party follows the provisions of subsection (j) of this section.

In addition to outlining the relative rights of the employee and employer to effectuate a settlement with the third party, N.C.G.S. § 97-10.2(f) outlines the priority of payments of the funds received from the third-party settlement.  This provision states:

(f) (1)        If the employer has filed a written admission of liability for benefits under this Chapter with, or if an award final in nature in favor of the employee has been entered by the Industrial Commission, then any amount obtained by any person by settlement with, judgment against, or otherwise from the third party by reason of such injury or death shall be disbursed by order of the Industrial Commission for the following purposes and in the following order of priority:

a.         First to the payment of actual court costs taxed by judgment and/or reasonable expenses incurred by the employee in the litigation of the third party claim.

b.         Second to the payment of the fee of the attorney representing the person making settlement or obtaining judgment, and except for the fee on the subrogation interest of the employer such fee shall not be subject to the provisions of G.S. 97 90 but shall not exceed one third of the amount obtained or recovered of the third party.

c.         Third to the reimbursement of the employer for all benefits by way of compensation or medical compensation expense paid or to be paid by the employer under award of the Industrial Commission.

d.         Fourth to the payment of any amount remaining to the employee or his personal representative.

(2)        The attorney fee paid under (f)(1) shall be paid by the employee and the employer in direct proportion to the amount each shall receive under (f)(1)c and (f)(1)d hereof and shall be deducted from such payments when distribution is made.

As stated above, there are three ways that a third-party claim can be resolved.  One way is that the employer and employee must agree on the settlement amount.  The second way is that the employee can settle with the third-party so long as the workers’ compensation carrier receives the full lien amount minus the carrier’s share of attorney fees paid to the employee’s attorney in the third-party case.  The third way is for the employee to file a petition for the lien to be reduced or extinguished.  North Carolina General Statute § 97-10.2(j) provides in pertinent part:

Notwithstanding any other subsection in this section, in the event that a judgment is obtained by the employee in an action against a third party, or in the event that a settlement has been agreed upon by the employee and the third party, either party may apply to the resident superior court judge of the county in which the cause of action arose or where the injured employee resides, or to a presiding judge of either district, to determine the subrogation amount. After notice to the employer and the insurance carrier, after an opportunity to be heard by all interested parties, and with or without the consent of the employer, the judge shall determine, in his discretion, the amount, if any, of the employer’s lien, whether based on accrued or prospective workers’ compensation benefits, and the amount of cost of the third party litigation to be shared between the employee and employer.

Under this provision, the superior court judge can decide how the costs will be shared between the parties and the amount of the insurance carrier’s lien.  In deciding the amount, if any, of the employer’s lien and the amount of costs to be shared, subsection (j) outlines five factors that the trial judge shall consider:

(1) the anticipated amount of prospective compensation the employer or workers’ compensation carrier is likely to pay to the employee in the future;

(2) the net recovery to plaintiff;

(3) the likelihood of the plaintiff prevailing at trial or on appeal;

(4) the need for finality in the litigation; and

(5) any other factors the court deems just and reasonable.

When the judge is deciding the petition and whether to reduce or extinguish the lien, the judge must consider the five factors and make findings of fact and conclusions of law on the five factors.  Once the judge makes the decision, the judge’s order must be submitted to the North Carolina Industrial Commission for approval, since the Industrial Commission has final approval authority.