Coleman: Contribution Considerations During Settlement Season

Monday, December 20, 2021 | 0

Toward the end of year, applicants often become interested in settlement of their workers’ compensation claims to help fund celebration of the holidays and the new year.

Lauren M. Coleman

This can sometimes lead to rushed settlements with applicants’ attorneys who are eager to finalize settlements as soon as possible. As we enter the season of settlement, particular attention should be paid to the language included in settlement documents to preserve contribution rights.

With cumulative traumas with multiple defendants in particular, care must be taken to ensure the settlement documents clearly express the intent of the parties to resolve liability for all defendants to ensure contribution can be sought. When drafting settlement documents resolving cumulative traumas and multiple cases at once, it may be helpful to ask the following questions.

Is there an election?

Labor Code §5500.5(c) allows an injured worker to elect to proceed against any one or more employers in any claim for occupational disease or cumulative trauma resulting from more than one employment. Once an election is made, settlement of the case with the elected defendant resolves liability for all defendants, and all employers who may be held liable for benefits are jointly and severally liable for any settlement award that issues in the case.

Whether an applicant has elected against the settling insurer will often determine whether a settlement resolves an entire cumulative claim or only a portion of the claim.

In Verdoulis v. Ink Systems Inc., the Workers' Compensation Appeals Board determined that without an election, there is no presumption that a settlement covers liability for any defendants other than those who sign the documents.

In that case, the defendant, National Fire Co. of Hartford, adjusted by CNA (hereinafter CNA), entered into a compromise and release (C&R) of three cases including two cumulative traumas. After the order approving compromise and release issued, the applicant attempted to elect against another defendant, American Insurance, for one of the cumulative traumas included in the C&R.

The WCAB determined that because there was no evidence of an election or other expressed intention for CNA to administer benefits to the benefit of American Insurance, the settlement was with CNA and CNA only, and only CNA’s liability was resolved. Since the liability of American Insurance was not resolved, CNA could seek only contribution pursuant to Labor Code §5500 for any portion of the $120,000 paid to the applicant for the C&R that it could prove was paid for any period of the cumulative trauma covered by American Insurance.

An election can be made in the settlement documents. In Rodriguez v. Sweet Temptations USA, Inc., the WCAB determined that the applicant inadvertently elected against both defendants in the C&R documents resolving a cumulative trauma when he intended to elect against only one. Because both defendants were elected against, the entire cumulative trauma was resolved and the applicant was barred from seeking additional benefits from the other defendant.

Does the settlement intend to settle liability for all defendants?

When there is no election, the settlement must be made expressly for the benefit of any defendants for whom liability will be resolved.

In Verdoulis, the WCAB determined that no evidence existed to show that the settlement expressly intended to resolve liability for any defendants other than CNA.

This outcome can be avoided by including language expressly outlining all defendants for whom liability is being resolved by the settlement. The holding in Verdoulis also implies that pursuing recovery against a co-defendant before settlement, such as filing a petition for contribution, could help establish the expectation that a settlement resolves liability for additional defendants who do not sign the settlement documents.

Is your language to generic?

As a note of caution, expressed intent to settle liability applies only to parties to the case at the time of settlement.

In Ventura, the WCAB determined that the common language reserving the defendant’s “right to contribution from any and all agents/assignees/TPAs, Insurance Co. during CT period, including but not limited to Zenith” was insufficient to reserve contribution rights against Zenith because it was not yet joined as a party at the time of settlement. As a result, the C&R did not resolve any liability Zenith might have to the applicant’s claim.

The WCAB noted that defendant Wasco may still be able to pursue recovery under Labor Code §5500 generally.

Defenses against contribution

It is not uncommon for a single defendant to pursue a rushed settlement resolving a cumulative trauma or multiple cases without first consulting the other party defendants. In the event you find yourself defending against a claim for contribution based on a settlement you did not sign off on, be sure to confirm that an election was made and, if not, review the settlement documents to ensure that the settlement expressly intended to include your employer before agreeing to any payment for contribution.

If neither can be found, contribution may be barred and an attorney should be consulted.

All contribution disputes are subject to arbitration, which often is not worth the time or cost. Even if a contribution dispute resolves via settlement, these considerations can be a useful tool to reduce exposure.

Lauren M. Coleman is an associate attorney at Bradford & Barthel’s Oakland office. This entry from Bradford & Barthel's blog appears with permission.