Commutations and the Life Pension Gap

Saturday, June 7, 2003 | 0

An area of confusion that seems to come up regularly, especially for those that are new to adjusting work comp claims, is commutation and the effect it has on an Award.

Commutation is specifically authorized by Labor Code section 5100:

At the time of making its award, or at any time thereafter, the appeals board, on its own motion either upon notice, or upon application of either party with due notice to the other, may commute the compensation payable under this division to a lump sum and order it to be paid forthwith or at some future time..."

The confusion arises when an Award includes a life pension pursuant to Labor Code section 4659. 4659 provides that if permanent disability exceeds 70 percent, then a life pension is due the applicant. The question most often searched for at workcompcentral when commutation is mixed with life pension is when does the life pension begin, if the commutation is taken "off the far end of the award".

The short answer is that a commutation "off the far end of the award" does not alter the start date of the life pension. There are legal and practical reasons supporting this conclusion.

The practical reason is that if the life pension payments were "brought forward" to meet the shortened ending date of the regular PD payments, then the applicant would be unjustly enriched by getting more life pension payments than he would be entitled to.

The legal reason can be found in the black letter language of LC 4659, which states specifically that, "If the permanent disability is at least 70 percent, but less than 100 percent, 1.5 percent of the average weekly earnings for each 1 percent of disability in excess of 60 percent is to be paid during the remainder of life, after payment for the maximum number of weeks specified in Section 4658 has been made." (Emphasis added.)

The controlling language is "after payment for the maximum number of weeks". The reference is to time, not to dollar amount.

Labor Code section 4658 sets for the number of weeks indemnity is payable for the applicable range of permanent disability.

One of the problems is if a commutation is made from the far end of the award, there could be a substantial gap between the ending date of the balance of the PD payments, and the beginning of the weekly life pension payments. Care should be taken to ensure that the applicant is aware of this possibility. The workcompcentral.com Commutation Calculator will let you know the total number of weeks eliminated from the far end of the award if you choose Computation 2 (commutation from far end of award). This will be the gap between the end of regular PD indemnity and the beginning of the life pension.

For example, assume the following facts: DOI 2/6/00, PD commencement 3/9/01, DOC 6/6/03, 72% PD at $230/week, commuted amount of $10,000. This will eliminate 51.6054 weeks from the regular award. This means that the applicant will have a gap of almost a year with no indemnity being received. If the applicant does not understand this there could be grief, and additional litigation.

When a commutation is requested the applicant should also be presented with an option to reduce the weekly PD amount by a uniform reduction in order to ensure that there is no gap. If you were to use the workcompcentral commutation calculator, choose Computation 3. Assuming the facts above, then, the new PD rate will be $196.51, and there will be no interruption in indemnity.