After settlement or judgment of a third-party civil case, the employer is entitled to a credit based on the employee’s net recovery in the civil action. (Labor Code Section 3858, Graham vs. WCAB 210 Cal App 3d 499, 503)
THE EASY PART
The defense attorney in the workers’ compensation case can simply contact the applicant’s attorney or civil attorney and request a breakdown of the third-party civil settlement. The breakdown should include attorney’s fees, costs and net recovery to applicant. Then a Petition for Credit is filed with the Board requesting credit based upon the net recovery of applicant/plaintiff in the civil action.
THE HARD PART – Employer Negligence
One of the biggest problem areas in asserting a Petition for Credit is the issue of employer negligence. The applicable law is Arbaugh vs. Procter & Gamble Manufacturing Company (1978) 80 Cal 3d 500. This provides a formula to determine the recovery amount to the carrier.
First, determine the value of the third-party case (individual applicant/plaintiff) plus the carrier’s case. There are many ways to do this (amount of settlement, medical costs, testimony of experts in civil case).
Second, determine the percentage of employer negligence?
Third, multiply the employer negligence times the case value. This figure becomes the “threshold”.
Example: civil case is worth $100,000.00. The employer negligence is 25%. The carrier cannot collect any monies below their payout of $25,000.00 (which is 25% of $100,000.00). This avoids a double recovery for a negligent employer. In other words, defense can collect only monies spent above $25,000.00.
Burden of Proof
To establish the credit, a mini-civil trial is conducted at the Board, something WCJs do not often do.
Defendant has the burden of showing:
- there has been a settlement between the applicant and a third-party tortfeasor entitling it to a credit, and
- the comparative negligence of the injured employee or the third-party tortfeasor.
The applicant has the burden of establishing:
- the total amount of his damages, and
- the employer’s negligence. (Martinez vs. Associated Engineering and Construction Company, 44 CCC 1012)
The easy part is obtaining applicant’s/plaintiff’s net recovery information. The hard part is conducting a mini-civil trial at the Board to determine the amount of the credit.
Please feel free to contact me should this issue arise in any of your cases.
Whether you have difficulties with the “easy” or “hard” parts, feel free to contact Peter V. Fitzpatrick. As a partner at Bradford & Barthel, LLP, Mr. Fitzpatrick has garnered nearly 20 years in workers’ compensation defense with a heavy focus on all aspects of civil matters. He can be reached at email@example.com or (909) 476-0552.
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