Tag Archives: industrial injuries

Settlement of High-Exposure Workers’ Comp Claims, Part Three

Part I (Identification) and Part II (Valuation) of this series provided insight into identifying and correctly valuing the appropriate cases to approach for settlement. In Part III, we will turn an eye toward successful negotiation and resolution. 

Negotiation

Beyond the financial aspect of the negotiation are underlying factors that are not always obvious. The most important aspect to understand is that there is an individual whose life has been seriously affected by an industrial injury. Many times this fact is lost in the volumes of reports, bills and correspondence.

Preparation

After the valuation of the case has been completed, several elements still remain that need to be addressed before proceeding with negotiation.

First, the future indemnity exposure and its value must be evaluated. Next is consideration of the injured workers’ Medicare status. Criteria have been outlined in various memoranda put out by Centers for Medicare and Medicaid Services (CMS); critical elements include:

  1. Is the individual receiving Medicare benefits?
  2. Is there a reasonable expectation in the next 30 months that the individual will be entitled to Medicare benefits, and the settlement is in excess of $250,000?

If the answer to either question is “yes” then the parties should conduct a Medicare Set-Aside analysis. Is it best to fund the MSA with cash or an annuity? In most high-exposure cases, the MSA is substantial, and the use of an annuity is critical to settlement. Once the MSA is completed, submission to CMS for review and approval should be sought as soon as possible. At present, the turnaround time is approximately four to five weeks, though it sometimes takes considerably longer. 

The next consideration is the value (future and discounted) of items such as home/attendant care, non-covered equipment and off-label medications. These are all the “medical” items that cannot be paid for through the MSA and would become the responsibility of the injured worker. 

Finally, as each case is unique, are there any other factors specific to the individual’s case that must be considered, such as retroactive or unpaid benefits, disputed costs or out-of-pocket expenses?

In most high-exposure settlements, a combination of cash and annuities are going to be the critical elements. At a minimum, most MSAs are funded via “seed” (initial payment) and annual payments via an annuity. The balance in some instances is paid in cash; however, in most cases, some form of future income stream should be created to ensure the injured worker has funds to pay for non-Medicare-covered items as well as some level of income replacement for either a fixed period or for the remainder of his life. 

Human Element

The human element cannot be overlooked. Many times, the individual needs to “vent” by telling his story. This can be a cathartic moment that forms a bond with the injured worker and establishes a level of trust. 

Bringing all parties together face-to-face to lay out the issues from all sides is crucial. This creates an environment of understanding and illustrates a seriousness about resolution, and the intelligence gained is invaluable. Many times, an injured worker makes a seemingly benign comment that is the key to resolving a case. For example: “I want to make sure my family is taken care of after I die.” Or, “All I want to do is move to my house in Oregon and spend the rest of my days bass fishing,” or “I would like better living arrangements for myself and my Rottweilers.”

These are actual comments made during initial discussions that, with a little creativity, let the parties craft a settlement that fit the needs of injured workers. This is not to suggest that these cases could not have otherwise settled, but the key to resolving them was to find what was important and unique to the injured workers.

Many workers are frustrated by the workers’ compensation system and are seeking a way to move on to the next chapter of their lives. 

Creativity

There is no such thing as “one size fits all” in high-exposure claims. Crafting the most beneficial settlement for the injured worker is the key. Gone are the days of a fixed amount of cash plus the funding of the MSA.

For the worker who wanted to bass fish, for example, a settlement was crafted to include a bass boat, a small amount of cash and a lifetime income stream through an annuity. The agreement was reached in a very short time. For the worker who wanted to be sure his family was cared for after his death, a settlement was crafted — again, within the framework of the value of the case — to provide him an upfront sum of cash, an annuity to fund his MSA and a tax-free annuity referred to as a “Joint and Survivor Benefit” that produced income for him and his wife as long as either was still living. For the worker worried about her pets, a creative solution provided for housing accommodations for her and her two very large dogs. 

The point is to pay close attention and understand what is important to an injured worker. While we all may have opinions about the best way to craft a settlement, ultimately it is the injured worker who has to live with it. Providing workers with settlements that meet their specific needs and wants will not only engage them in the settlement process but will leave them with the satisfaction that they got what they wanted.  

Resolution

Once terms are agreed on, we arrive at the resolution phase. At this point, jurisdictional requirements need to be considered, and they are quite variable. 

The first issue is to ensure that Medicare’s interests have been adequately considered. Then, aside from any conditional payments by CMS that may exist and will need to be addressed post-settlement, the remaining issue is to ensure that settlement documents are drafted that meet the requirements of the specific jurisdiction (state, federal, etc.). Typically, this is handled by defense counsel.

Conclusion

If the parties are prepared, the negotiation and resolution phase moves rather quickly from an initial discussion to an agreement of terms, to the preparation of settlement documents and finally to submission to the appropriate entity for approval. Beyond preparedness, the keys to success include understanding the human element and being creative about addressing the needs and concerns of the worker while staying within the value of the case.

Addressing the three elements covered in this series on high-exposure workers' compensation claims — Identification, Valuation and Negotiation/Resolution — will benefit all parties. The carrier/self-insured will reduce projected exposure. For the injured worker, while a settlement cannot replace what he lost, it will let him move forward with his life based on an adequate, fair settlement. 

On Hand-Eating Clams And Independent Contractors

Is that guy you have doing that work you need done an independent contractor or an employee? Why does it matter? Well, aside from a whole host of other issues, liability for industrial injuries may hinge on whether that worker was an employee or an independent contractor.

Your humble author recently had occasion to visit his uncle Olaf. For those familiar with the exciting sport of competitive clam-breeding, you’ll no-doubt have heard of Olaf the Clamtastic, world-famous for his exceedingly rare clam-breeding abilities. He also has a business which sells the Giant Clams he raises, “Olaf’s World of Clams.” “Uncle Olaf,” I said, “who is that nice young man cleaning your prize-winning clams?” Uncle Olaf looked up from his magazine, Clams and Claims, and peered at his Olympic-sized swimming pool, the one where his giant clams ruled and all others feared to tread.

There, scrubbing the giant clams, was a young gentleman with a nervous look concealed by goggles and a breath mask.

“Oh,” said Uncle Olaf, “That’s Jim — he’s my independent contractor helping me keep the Clams clean.” As Uncle Olaf turned the page with one of his two hook-hands, I remarked “it’s a good thing he’s a contract worker and not an employee, those clams can be vicious!” But, the workers’ compensation defense attorney in me felt something was amiss. So, being the good nephew that I am, I asked Uncle Olaf, “how do you know he’s a contractor and not an employee?”

Uncle Olaf smiled, as if his silly nephew couldn’t be any sillier, and said “because I didn’t buy workers’ compensation insurance for him, of course!”

Poor Uncle Olaf …

The State of California does not require independent contractors to be covered by workers’ compensation insurance. In theory, one could have a thriving business using nothing but independent contractors and saving untold fortunes on workers’ compensation policy payments.

But, the law requires employers to either self-insure or obtain workers’ compensation insurance for their employees. And, much to Uncle Olaf’s surprise, the nature of a relationship, with respect to employer or contractor, is not determined by the possible employer’s purchase or failure to purchase workers’ compensation insurance. There is another test out there …

But, let’s start with the basics.

California Labor Code section 3353 defines an independent contractor as “any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.” Section 3353 was enacted in 1930, codifying the common law distinction between employees and independent contractors. But, this distinction wasn’t concerned with workers’ compensation, but rather with tort law. Whereas an employee could make his employer liable for injuries caused to third parties (imagine an employee-bartender accidentally dropping a crate of fine whiskey on a poor bar patron — an unbearably cruel thought, I know, but one necessary to shock and make the point), the liability buck stopped with an independent contractor.

But, as California Labor Code section 3357 specifically excludes independent contractors from the presumption of employment (and therefore the presumed requirement for the employer to insure or self-insure against those workers’ industrial injuries), the issue is an important one — and case-law expanded the test. So, poor Uncle Olaf can’t put his checkbook away just because he never took it out to insure against a worker’s injuries. Uncle Olaf can’t even put his checkbook away just because he doesn’t micromanage the work or “control the means by which such result is accomplished.”

After all, Uncle Olaf thought that, so long as he doesn’t stand over the young gentleman’s shoulder … hovering … judging … making little comments and directing his every move (“you missed a spot, scrub that clam harder, put your hand inside the clam to get a better grip …”) the young gentleman could remain an independent contractor and Uncle Olaf could laugh at the competitor Clam stores paying insurance premiums every month.

So, dear readers, there I sat in my beloved Uncle Olaf’s kitchen as he ground his hooks into his wooden table, nervously watching the man he hired to clean his prize-winning clams for his Clam sale business, who he thought was his independent contractor but was actually allegedly (your humble author is a zealous defense attorney, after all) an employee, place his hands inside the snappiest of Uncle Olaf’s prize-winning clams. “Scrub from the outside!” he shouted, but the young gentleman cleaning the clams couldn’t hear him …

The California Supreme Court issued its opinion in the case of S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989), outlining the proper analysis for determination of the question of employment or independent contractor status. S. G. Borello & Sons owned farmland near Gilroy (a place with a wonderful Garlic Festival). Although they kept regular employees for the various crops grown on these farms, for cucumbers, the nature of the market dictated another approach. Cucumber harvesting was contracted out to various migrant farm-worker families.

The families were provided with the opportunity to lay claim to a certain amount of plots of cucumbers, were provided with crates into which to harvest the cucumbers, but were otherwise left to their own devices. The cucumbers were sold to a pickle company in the area, and the profits were shared between the land-owners and the harvesters.

For the multi-week cucumber harvesting season, the harvesters were responsible for taking care of the cucumbers, picking only those ripe and ready for picking, and generally seeing about maximizing profits. The most aggressive task-masters in S.G. Borello & Sons employ found themselves absolutely powerless at the edge of the cucumber plots, for no employees dwelt there — only independent contractors.

That is, until, the Department of Industrial Relations issued a stop-work order. Finding that the independent-contractors were actually employees, and uninsured employees at that, the Department of Industrial Relations went on the war path against poor Mr. Borello and his sons (as well, effectively, against all other farmers in the Gilroy area that adopted the same practices).

Borello’s argument before the Supreme Court was simple — unlike other crops, cucumbers required a degree of knowledge and skill for harvesting, and the harvest workers were compensated for the final product and not the means of rendering service. But the Supreme Court found that other factors, primarily found in the Restatement Second of Agency, play into the analysis as well, among them:

  1. The right to discharge at will, without cause;
  2. Whether the worker is engaged in a distinct occupation or business;
  3. Whether the occupation, in that locality, is typically performed by a specialist without supervision;
  4. The skill required in the particular occupation;
  5. Whether the worker supplies the instrumentalities, tools, and the place for doing the work;
  6. The length of time for which services are performed;
  7. The method of payment (hourly or by task);
  8. Whether the work is part of the regular business of the principal; and
  9. The intent of the parties.

The Borello Court noted that “under the [Workers’ Compensation] Act, the “control-of-work-details” test for determining whether a person rendering service to another is an ’employee’ or an excluded ‘independent contractor’ must be applied with deference to the purposes of the protective legislation.”

The Court also noted that the workers made minimal investment in their work — no heavy equipment but just basic tools.

Other cases followed too.

In the case of Jose Luis Lara v. Workers’ Compensation Appeals Board (2010), for example, the Court of Appeal examined whether a garden-variety handy-man could be an independent contractor. Lara sustained a pretty serious injury while doing work for a small shop called Metro Diner. Metro Diner didn’t have Lara covered by its workers’ compensation policy because he had no regular employment — he was called up to do odd work such as trimming bushes along Metro Diner’s roofline.

Lara provided his own equipment, paid his own taxes, and, although he was paid by the hour, was hired by the job rather than on a general basis. Nor did Metro Diner set Lara’s hours — he was just told to come early or late to avoid interfering with the operation of the Diner.

The workers’ compensation Judge found that Lara was an employee, and the Workers’ Compensation Appeals Board reversed. In affirming the Workers’ Compensation Appeals Board’s finding that Lara was a contract employee, the Court of Appeal cited Borello. Specifically, the Court noted that gardening was Lara’s line of work (and not the Diner’s), that Diner could not control the manner of Lara’s work, Lara had his own clients (other than Diner), and Lara had a substantial investment in his business (lots of tools, equipment, etc.).

As Uncle Olaf scratched his head (very carefully, mind you, as those razor sharp hooks hurt!), I could see that he wasn’t convinced. His prize-winning, hand-eating, giant-clam-raising mind was working. What else did Uncle Olaf think he had up his sleeve?

Uncle Olaf was beginning to get worried — what if his upstart nephew was right and, even though Uncle Olaf didn’t get insurance for the Clam Cleaner, an employment relationship was formed. After all, if Mr. Clam Cleaner was an employee, Uncle Olaf would be liable for any injuries sustained by Mr. Clam Cleaner, and, having lost both hands to giant Clam Bites before, was very much aware of the risks involved.

“I’m pretty sure he is an independent contractor,” said Olaf. Just then we heard a loud *SNAP* as a clam slapped shut, and the young gentleman in the Clam tank yanked his hand away just in time. Uncle Olaf breathed a sigh of relief and said “but he signed a contract … the contract says ‘I am not an employee; I am an independent contractor. I will clean Olaf’s clams. And if I should lose a hand or two, I will only sue the clam or clams that got me, and not poor Uncle Olaf.'”

I shook my head and told poor Uncle Olaf of the panel decision in the case of Leonard Key v. Los Angeles County Office Education. Leonard Key had signed a contract stating that he was an independent contractor paid to teach music lessons at one of the Los Angeles County schools. However, the Workers’ Compensation Judge found that Mr. Key was, in fact an employee, and his injury was compensable. Workers’ Compensation in California is compulsory, after all, and Mr. Key was simply an employee by any other name. And, after all, the farmers in the Borello case had signed a contract as well.

The most important thing for Uncle Olaf to remember is the guiding policy of workers’ compensation — to shift the costs of industrial injuries to the producers and not the consumers/public. Even the Legislature might make efforts to amend the law, defining a contractor vs. an employee based on a long list of factors.

So, dear readers, what should Uncle Olaf do? Before the young gentleman sticks his hand into another one of Uncle Olaf’s clams, should Olaf pull him out of the tank and cease operations until he can get a workers’ compensation policy?