I Want a Do Over! Overturning an Approved Settlement

Friday, January 16, 2015 | 0

There are few more disconcerting developments in workers’ compensation litigation than to have worked hard to achieve a successful settlement complete with review and approval by a judge, only to have a party suddenly decide the settlement was not in their best interest and to file paperwork seeking to have the settlement set aside. Usually the party requesting the grant of a “Mulligan” is the applicant, but occasionally it is a defendant (even the author of the compromise and release) who seeks to undue the deed. In simple terms, the compromise and release is a legally binding contract and, in legal speak, the act of nullifying it is called rescission.

The Workers' Compensation Appeals Board has jurisdiction to set aside a compromise and release for good cause within five years from the date of injury.  

Labor Code section 5803 states:

"The appeals board has continuing jurisdiction over all its orders, decisions, and awards…. At any time, upon notice and after an opportunity to be heard is given to the parties in interest, the appeals board may rescind, alter, or amend any order, decision, or award, good cause appearing there for. This power includes the right to review, grant or re-grant, diminish, increase, or terminate, within the limits prescribed by this division, any compensation awarded, upon the grounds that the disability of the person in whose favor the award was made has either recurred, increased, diminished, or terminated."

It has been said that an order or decision affecting the rights and obligations of parties should not be lightly cast aside upon the mere petition of one of the parties who thereafter becomes dissatisfied. Silva v. IAC, 11 IAC 26, 68 Cal App 510, 229 P. 870 (1924). The provisions of the Civil Code relating to rescission of contracts apply to an application to rescind a compromise and release, and the parties seeking to rescind must do so promptly and restore to the other party every benefit previously provided by the settlement.

Labor Code Section 5803 is limited by Section 5804, which states in part: "No award of compensation shall be rescinded, altered, or amended after five years from the date of the injury except upon a petition by a party in interest filed within such five years ….”  Before the expiration of the five year period, a compromise and release may be set aside for intrinsic or extrinsic fraud or mistake, duress or undue influence. Johnson v. WCAB, 35 CCC 362 (1970). If more than five years has passed since the date of injury, the WCAB loses jurisdiction to act, except in very limited circumstances.

It is clear from the cases on this subject that simply changing one’s mind after a properly executed C&R is approved is not sufficient grounds to get a rescission of the settlement. An approved workers' compensation compromise and release rests "upon a higher plane than a private contractual release; it is a judgment, with 'the same force and effect as an award made after a full hearing.'"

Within five years of the date of injury, an order of the board approving a C&R, like other orders, decisions and awards of the Board, may be rescinded, altered or amended by the Board upon a showing of 'good cause.' After the five-year period has elapsed, the Order Approving Compromise and Release constitutes a final judgment and may be set aside only upon a showing of fraud or mistake of the kind generally referred to as "extrinsic" fraud or mistake. Smith v. WCAB, 50 CCC 311 (1985).

In one case, the applicant petitioned to set aside a settlement, asserting he agreed to it under duress and with a mistaken understanding of material facts. The mistake claim had two major aspects. First, he believed respondent employers' insurance would pay for future medical care. Second, petitioner claims he understood he was to receive the entire $22,500 settlement amount without deduction for lien claims, despite language in the settlement documents to the contrary. Applicant also claimed duress because he was told it would be a long time before the case would be resolved through trial and he was being hounded by creditors.

The issue went to trial with testimony from the applicant, his attorney, defense counsel and the judge who approved the settlement. The WCAB refused to set aside the compromise and release, noting the settlement appeared to be a tactical decision and that the applicant had read the settlement documents and had been counseled in the matter by his attorney. The Court of Appeal made the following comment: “Unless it was at least likely that respondent employers would prevail upon their statute of limitations defense and assertion that petitioner's total disability was not caused by his employment, settlement of a 100 percent disability case with substantial past and future medical expenses for $22,500 is extremely questionable. However, it appears the settlement was made with a view to recovery of substantial compensation benefits in other cases and upon the psychiatric disability and serious and willful aspects of this case. Otherwise stated, there is evidence that the settlement agreement was a tactical decision. The fact that petitioner drove around to get signatures for the agreement tends to negate a conclusion that he was coerced into it.” Breeding v WCAB, 47 CCC 45; (1982).

Although as a tactical matter it may be wise for a party seeking rescission to file a Petition for Reconsideration, failing to do so may not be fatal. In one case, the Court of Appeal, annulling a decision of  the WCAB, found good cause to reopen the pro per applicant's case, pursuant to Labor Code § 5803, that had been settled by compromise and release, when the court held that circumstances surrounding the settlement contributed to a misunderstanding by applicant regarding disputed earnings and the rate of temporary disability indemnity and that the applicant's misunderstanding and his mistake or inadvertence were excusable. The court also noted that procedural irregularities, including  a pre-trial conversation between the judge and the Information and Assistance officer, in which the officer indicated at least part of her intended testimony, and "off-the-record" discussion between the judge and the applicant provided good cause to reopen even though the pro per applicant had not filed petition for reconsideration of the compromise and release. Phillips v WCAB, 2007 Cal. App. Unpub. LEXIS 2701; not certified for publication. [See generally Hanna, Cal. Law of Emp. Inj. and Workers' Comp. 2d §§ 28.03[1][b], 29.05[3].]

One way to help prevent a party from attempting to rescind is to make sure that all discussions regarding terms of the settlement offer are clear and well-defined (such as "new money" vs. "credit for sums paid") and that disposition of all unresolved economic issues in the case are clearly and concisely covered in the settlement documents and addenda to those documents. Make sure the proposed Compromise and Release accurately states any deductions to be made from the proceeds (credit for PD advances being a potential hotbed of misunderstanding). Also, make sure the settlement clearly states who will be responsible for past and future treatment bills. Unless you know the contrary to be true, consider an affirmative declaration signed by the applicant that no benefits have been received from any state of federal agency except the Employment Development Department.  

Of course, in all applicable cases, make sure you have clearly enumerated and described Medicare Set Aside addenda and have established from CMS that there is no conditional lien outstanding. While there is no ultimate guarantee that a party will not suffer “buyer’s remorse” and seek to have an approved settlement rescinded, following these steps will go a long way to prevent your closed file from coming back for a “do over.”

Howard Stevens is director of training for the Law Offices of McDermott & Clawson. This column was reprinted with permission from the firm's Legal Briefs newsletter.