If you are receiving workers’ compensation benefits and also pursuing a third-party personal injury claim, there is a connection between the two that you must understand before you settle either one. Your employer’s workers’ compensation carrier has a statutory lien on any recovery you receive from the third party. That lien gives the carrier the legal right to be reimbursed from your third-party settlement or verdict for the benefits it paid on your behalf.
The lien is not optional. It is not negotiable between you and the carrier in the way that other aspects of a settlement might be. It is created by statute — Workers’ Compensation Law Section 29 — and it attaches automatically. If you do not account for the lien when evaluating a third-party settlement, you may end up with far less than you expected. This article explains how the lien works, how it is calculated, and why it must be part of every third-party settlement analysis.
What the workers’ compensation lien is
When a worker is injured on the job and a third party is also responsible for the injury, the workers’ compensation carrier pays benefits to the worker while the third-party claim is being pursued. The carrier pays medical bills, pays weekly wage replacement, and covers all other benefits the worker is entitled to under the workers’ compensation system.
The lien is the carrier’s right to recover those payments from the third-party settlement or verdict. The legal theory is straightforward: the third party caused the injury, so the third party should ultimately bear the cost. The carrier stepped in and paid benefits while the third-party claim was being resolved. Now the carrier is entitled to be reimbursed from the recovery the third party is paying.
The lien covers the benefits the carrier has already paid and, in some cases, the benefits the carrier is obligated to pay in the future. The total lien amount can be substantial. A worker who received $50,000 in wage replacement and $75,000 in medical care before settling a third-party case has a carrier lien of $125,000. That amount comes out of the third-party recovery before the worker receives the remaining balance.
How Section 29 creates and enforces the lien
Workers’ Compensation Law Section 29 is the statutory provision that creates the lien. It provides that when a third-party action is commenced, the workers’ compensation carrier has a lien on the proceeds of that action for the amount of benefits paid or to be paid.
Section 29 also establishes important procedural requirements. If you pursue a third-party claim, you must notify the carrier and give the carrier an opportunity to participate in or protect its lien interest. If you settle a third-party case without the carrier’s consent, the carrier’s lien may still attach to the settlement proceeds, and you could face complications in your ongoing workers’ compensation case.
Section 29 also sets a deadline. If neither the injured worker nor the carrier commences a third-party action within six months of the date the carrier begins paying benefits, the right to bring the action does not expire immediately, but the carrier gains the right to commence the action itself. This provision ensures that viable third-party claims are not abandoned. If you have a potential third-party claim, do not let it sit. Pursue it or discuss it with an attorney who can evaluate it.
How the lien amount is calculated
The gross lien is the total amount of workers’ compensation benefits the carrier has paid on your behalf — wage replacement, medical bills, and any other benefits. But the net lien — the amount the carrier actually recovers — is typically reduced.
Under New York law, the carrier’s lien is reduced by its proportionate share of the attorney’s fees and costs incurred in prosecuting the third-party action. The rationale is that the carrier benefits from the third-party recovery, so the carrier should share in the cost of obtaining it. If your attorney charges a one-third contingency fee and incurs litigation costs, the carrier’s lien is reduced by the same proportionate share.
The calculation works in steps. Start with the total third-party recovery. Subtract the attorney’s fee and litigation costs. The remaining amount is the net recovery. The carrier’s lien is then satisfied from the net recovery, but the lien itself is reduced by the carrier’s proportionate share of the fees and costs. The balance after the lien is satisfied is what the injured worker keeps.
The math can be complex, and the exact calculation depends on the specific facts of each case. But the principle is clear: the lien reduces the injured worker’s net recovery from the third-party case. The larger the lien, the smaller the worker’s share. This is why the lien must be part of the settlement analysis from the beginning, not discovered after the settlement is signed.
How the lien affects your settlement decisions
The lien affects every aspect of how a third-party settlement is evaluated. A settlement offer that looks generous in gross terms may be less impressive after the lien is satisfied. A worker who settles a third-party case for $300,000 with a carrier lien of $125,000, attorney’s fees of $100,000, and litigation costs of $15,000 may net approximately $60,000 after all deductions — depending on the specific lien reduction calculations.
This does not mean the third-party claim is not worth pursuing. The $300,000 settlement in this example still provides the worker with compensation for pain and suffering that workers’ compensation would never have provided. And the workers’ compensation benefits were paid regardless of the third-party recovery — the worker received those benefits during recovery and is not being asked to return them. The lien is satisfied from the third-party recovery, not from the worker’s pocket.
But the lien must be factored into the decision about whether to accept a particular settlement offer. An attorney who evaluates a third-party settlement without accounting for the lien is doing an incomplete analysis. The number that matters is the net recovery to the client after the lien, fees, and costs — not the gross settlement amount.
How a third-party settlement affects future workers’ compensation benefits
A third-party settlement does not just affect the lien on past benefits. It can also affect your future workers’ compensation benefits. Under Section 29, the carrier may be entitled to a credit against future benefits based on the net third-party recovery. This means that after you settle the third-party case, your weekly workers’ compensation benefits may be suspended for a period of time until the credit is exhausted.
The duration of the credit depends on the net recovery amount and the weekly benefit rate. If the net recovery (after the lien, fees, and costs) is $60,000 and your weekly benefit rate is $600, the carrier may suspend benefits for 100 weeks — $60,000 divided by $600. After the credit is exhausted, workers’ compensation benefits resume.
This credit against future benefits is one of the most important and least understood consequences of a third-party settlement. An injured worker who settles a third-party case expecting to continue receiving weekly workers’ compensation benefits immediately may be surprised to find that those benefits are suspended. Understanding this consequence before settling — and planning for it financially — is essential.
Medical benefits after a third-party settlement
The effect of a third-party settlement on medical benefits depends on the terms of the settlement and the workers’ compensation case. In many situations, the workers’ compensation carrier continues to cover medical treatment for the work-related injury even after a third-party settlement, because the workers’ compensation case remains open for medical purposes. However, if the third-party settlement includes a component for future medical costs, the carrier may argue that it is entitled to a credit or offset.
The interaction between the third-party settlement and ongoing medical benefits must be analyzed carefully in each case. A settlement that closes out some but not all future obligations requires precise allocation of the settlement proceeds to ensure the injured worker retains access to medical care.
How Schwartzapfel Holbrook manages lien issues in third-party cases
At Schwartzapfel Holbrook, we account for the workers’ compensation lien in every third-party case from the earliest stages. That means tracking the total benefits paid by the carrier, calculating the projected lien at different settlement amounts, applying the fee and cost reductions to determine the net lien, computing the credit against future benefits, and presenting the client with a clear picture of what they will actually receive after all deductions.
We handle both the workers’ compensation case and the third-party case together, which gives us direct knowledge of the lien amount and allows us to coordinate the timing and terms of any settlement. A third-party settlement that looks adequate on its face may not be adequate once the lien, the credit, and the impact on future benefits are taken into account. Our clients understand the net number before they agree to anything.
Schwartzapfel Holbrook / Fighting For You