How Do Workers Compensation Settlements Work?Insurance Explained
When an employee is injured while working, he or she can claim workers compensation benefits provided by their employer’s insurer. The insurance policy responds to cover the costs of medical care and lost wages resulting from a workplace injury. Workers compensation insurance is an essential mechanism for helping injured employees recover from injuries and making it easier for employers to provide their workforce with security and aid during the recovery period.
It’s no surprise then that a vast majority of U.S. workers, close to 90%, are covered by workers compensation insurance that is mandated by federal law.
But what happens if the employee isn’t happy with the amount that’s being offered by the insurance company and doesn’t believe that the compensation offered is a fair amount?
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In such a case, a workers compensation settlement could be required. Let’s discuss what this process can potentially look like and what roles employees, employers, and state officials play in dealing with workers comp settlements.
Understanding the Workers Comp Settlement Process
When a work-related injury occurs, the workers compensation claim is brought to the insurance carrier and is usually accepted, after which the carrier offers a certain amount as reimbursement. It is then up to the employee to accept the offer and receive the amount of compensation that has been approved.
However, sometimes employees choose to refuse this offer. Instead of accepting the insurance company’s offer, an injured worker may hire a lawyer and pursue a larger settlement.
If this is possible, then why doesn’t every injured employee do this, in hopes of getting more money for the injury? Because if the employee decides to pursue workers comp a settlement, the chance also exists that they could be awarded less than what was initially offered by the insurer.
The injured employee will consult with their lawyer to decide on what they believe fair compensation would be for the injury in question. When deciding on this amount, the employee and his or her legal representation usually take the following factors into consideration:
- The medical costs already incurred and likely future costs of the injury
- Lost wages and potential future lost earnings
- Disability payments
- Cost of retraining to perform the job, if necessary
- The workers comp rules and regulations of the state in which the injury occurred
- The strength of the employee’s claim (Weighing factors that could potentially diminish the amount they’ll receive)
- Legal fees
If the two parties can’t come to a consensus about the compensation amount, then the only recourse left is to let the courts determine the settlement.
It’s also possible for insurers to initially accept the claim and start paying out benefits, but later dispute the claim if there are reasons to believe that the injury was not real or that it was not work-related. In such a case, a legal battle is once again the likely outcome.
In a regular settlement process, the worker who suffered the injury is required to waive the right to sue their employer in order to receive the approved compensation. However, if they allege that they were hurt due to the negligence of their employer or a third party, they can bypass the workers compensation system altogether and sue the responsible party for damages.
What Happens When a Workers Comp Claim Goes to Trial?
When a workers compensation lawsuit is brought to court, the judge will evaluate the case and first determine if the claim is valid and, if so, propose a settlement amount that the court deems fair. Once the court decides on the amount, both the insurer and the employee that has filed the claim can comply with the decision or choose to appeal either the whole settlement or certain parts of it.
The typical time allowed for an appeal is 30 days. If the insurance company unsuccessfully appeals the court decision or accepts the proposed amount outright, the settlement is complete and the carrier will pay out the agreed amount.
How Are Workers Comp Settlements Paid?
There are two ways a workers comp claim can be settled: as a lump-sum or structured settlement. In the case of a lump-sum settlement, the employee signs a settlement agreement concluding the case and in return, they get a one-time payment from the employer or the insurance company. In a structured settlement agreement, the employee will receive payments over an agreed period of time.
What is the Employer’s Role During a Workers Comp Lawsuit?
In the event of a workers comp dispute between the employee and insurer, the employer’s role will typically be limited. Most of the interaction will occur between the worker and the insurance company that carries the company’s workers comp policy. However, it’s a good idea for employers to take an active role in facilitating good communication between the insurer and employee and stay updated on the case.
The more involved and vigilant you are during this process, the lower the chances of your company being named in the lawsuit. It’s also a great way to show support to your injured employee.
Being transparent and providing both the insurer and the employee with all the necessary paperwork and contact information will go a long way in ensuring that the situation is resolved as quickly and as fairly as possible.
State Rules on Workers Comp Settlements
Not every state will allow a settlement to be offered at all stages of a workers compensation claim. For instance, in many states, whether a claim is approved or denied cannot be the subject of the settlement. Either the claim meets the criteria needed in order to be allowed or it doesn’t.
Additionally, some states will not permit the settlement to affect medical benefits. The employer or the insurance company may add a provision that prevents the worker from requesting that their medical bills be paid at a later date. The state may view this part of the settlement as unfair to the employee and could require the medical expenses to be paid despite the settlement.
Many states will require a court to review the proposed settlement in order to ensure that it doesn’t violate any state laws. This is especially true in the case of settlements that result from litigation.
If you’re interested in learning more about workers compensation insuring and potentially securing the best possible coverage for your business and your entire team, don’t hesitate to talk to one of our experienced insurance brokers at any time and get your workers comp quote.
Workers compensation insurance requirements are different for each state. Use this interactive map to learn more about requirements for the state in which you operate.
It’s important for business owners to understand how workers compensation premiums are calculated and what factors and characteristics of their businesses are most important to insurers.