Recent Indiana Supreme Court Ruling Re-emphasizes that Employee's Settlement with Third-Party without Consent of Employer Bars Worker's Compensation Claim
In Smith v. Champion Trucking Company, Inc., No. 93S02-0906-EX-276 (April 15, 2010), in a 5-0 decision, the Indiana Supreme Court held "an employer's worker's compensation liability for an employee's benefits terminates if the employee settles a claim against a third party for the same injury without first obtaining the employer's consent to the settlement." In reaching its holding, the Court relied on what is known as the "absolute bar" provision found in Paragraph 2 of I.C. Section 22-3-2-13.
In Smith, employee truck driver was injured by a third-party motorist. He then received worker's compensation benefits for his medical expenses from his employer. Following his departure from the trucking company, the employee filed an adjustment of his worker's compensation claim to receive benefits from his former employer in the form of additional medical expenses and for a permanent impairment.
Around this time, employee filed a lawsuit against the third-party. His attorney notified the employer of this lawsuit and the employer responded by stating he was entitled to a lien on any settlement proceeds. Employee ultimately settled the third-party lawsuit for $10,342. At that time, employee's lawyer paid the employer back out of the settlement for approximately $3,200 in medical expenses that the employer had paid. Subsequent to this, the employee received a 19% potential permanent impairment rating, which would entitle him to approximately $26,500 in additional worker's compensation benefits to be paid by his former employer.
Indiana's Worker's Compensation Board ruled that the "absolute bar" provision of Indiana Worker's Compensation Act prohibited required the dismissal of employee's adjustment of claim against his employer because he settled with the third-party motorist without receiving the employer's consent. On appeal, the Indiana Court of Appeals reversed this ruling, holding the "absolute bar provision" did not apply because the employee's worker's compensation claim had not been resolved at the time of his settlement and that the employer was aware of the third-party lawsuit making them free to challenge.
On appeal at the Indiana Supreme Court, the employee argued the "absolute bar" provision only applies when the third-party settlement exceeds the "total" worker's compensation claim.
In reaching its holding, the Indiana Supreme Court cited a long line of Indiana cases supporting "the proposition that an employer's worker's compensation liability terminates when the injured employee settles with a third-party tortfeasor without first obtaining the employer's consent."
