TN 4 (07-23)

DI 52105.010 Third Party Settlements

A third party is a person or entity other than the employer who may have caused or contributed to the work related injury or illness. Individuals may sue the third party and recover monetary damages. The proceeds from the third party settlement are not offsettable. Workers’ compensation (WC) received prior to any third party settlement is offsettable and normally stops due to the third party action. The WC carrier usually attaches a lien to the third party settlement to recover some or all of the WC. Offset is then removed in proportion to the amount of WC repaid.

A. Sharing the cost of third party settlements

In many States, the WC carrier must pay a portion of the individual’s attorney fees and other costs related to the third party settlement. The WC carrier’s share of these costs may be greater than the amount of WC to be repaid. In these cases, the WC lien is considered paid in full and the excess cost reimbursement payable to the individual after the WC lien is satisfied is not offsettable. The excess may be paid in a lump sum or in periodic payments. Do not confuse these payments with WC. Always read the settlement documents carefully to determine if a cost-sharing agreement exists.

B. Removing offset when third party settlement received

Take the following actions to remove offset:

  1. 1. 

    Verify that the payment represents a third party settlement and not a WC lump sum. If the case is a WC lump sum settlement, refer to DI 52150.060 - Prorating a WC/PDB Lump Sum Settlement.

  2. 2. 

    Do not offset any of the proceeds from the third party settlement or the WC payers’ share of the costs in excess of the WC lien.

  3. 3. 

    Obtain a copy of the court decision, when available, from the wage earner or the attorney that handled the third party settlement. Make sure the original bears the signature or stamp of the judge or approving official. Retain the documents per DI 52145.001 – Obtaining Verification/Proof of Workers’ Compensation/Public Disability Benefit (PDB).

  4. 4. 

    Review the documents to determine the WC amount, if any, repaid out of the third party settlement.

    1. a. 

      If all of the WC was repaid, remove all offset related to this WC claim.

      EXAMPLE 1: A hotel housekeeper was permanently disabled in an elevator accident. The hotel’s WC carrier paid WC payments and the housekeeper sued the elevator manufacturer. The housekeeper won a third party settlement of $500,000. The WC carrier wanted full reimbursement and set the WC lien at $50,000. The attorney fees and court costs incurred by the individual came to $150,000. The WC carrier benefited greatly from the settlement since the injury caused permanent injury. Therefore, the WC carrier’s share of the attorney fees and costs was set at 50 percent of the costs, or $75,000. Since this amount was $25,000 higher than the WC lien, the WC carrier agreed to pay the individual weekly payments at the amount of the previous WC rate until the $25,000 was paid out. The facts of this case are broken down in the table below.

      Amount Description Action


      WC lien

      Remove all offset – WC Repaid.


      WC carrier’s share of attorney fees and costs



      Remainder of WC carrier’s share of costs – to be paid out in weekly payments

      Input Special Message to indicate these payments are not WC and not subject to offset.

    2. b. 

      If some of the WC was repaid, remove the WC only to the extent that it was repaid. Remove offset using the most advantageous of the following methods:

      • Starting with the offset effective date (OED), remove only the dollar amount that was repaid; or

      • Reduce the weekly rate for the duration of the WC award;

      • Starting with the last date for which WC was paid, work backwards removing the dollar amount that was repaid.

      NOTE: When determining the most advantageous option, it is important to consider triennial redeterminations and protected increases.

      EXAMPLE 2: An individual was injured on the job December 4, 2000 and receives $250 weekly in WC. The individual settled a lawsuit with the third party who caused the work injury and received a $100,000 settlement. The final WC payment was received on March 6, 2007. The check for $142.84 paid WC for the four days ending February 28, 2007. The third party settlement papers show the WC lien as $22,000. The WC carriers’ share of the attorney fees and costs is $18,500, so the WC carrier receives $3,500 cash from the settlement. The facts of this case are broken down in the table below.

      Amount Description Action


      Third party settlement

      Do not offset. This is not WC/PDB.


      WC lien

      Remove offset for this amount of WC using the method that is most advantageous to the claimant.


      WC carrier’s share of attorney fees and costs




      Cash paid to WC carrier


    Settlement documents rarely indicate the specific period for which the WC is being repaid. If a period is stated, remove the WC for the specified period even if it is not the most advantageous method.

    EXAMPLE 3: Same factors as Example 2 except there is a clause in the settlement that states: “Workers’ compensation shall be deemed to be repaid for the period from June 23, 2005 through the final date of payment of temporary partial payments. The lien is therefore set at the sum of $22,000.”

    The difference in processing between Examples 2 and 3 is shown below.


    WC lien

    Last date of payment is 02/27/2007, not the date payment was received.

    Remove offset from 06/23/2005 through 02/27/2007. Show 06/22/2005 as the date the weekly payments of $250.00 ended.

    If repayment was waived, do not remove offset. Terminate offset effective with the last date for which WC was paid.

    EXAMPLE 4: Same criteria as Example 2 except the WC carrier agreed to waive the WC lien. The facts of this case are broken down in the table below.

    Amount Description Action


    WC lien

    Do not remove offset – WC not repaid.


    WC carrier’s share of attorney fees and costs



    Weekly WC rate

    Show February 28, 2007 as the date the weekly payments ended.

C. Possible future resumption of WC

Some agreements between the number holder (NH) and the employer and/or WC carrier after a third party settlement call for the WC payments to resume at a certain date (usually a number of years in the future). Review the documents carefully for any possible future WC payments and set a diary to re-contact the NH one month before the WC is set to resume. Development will be needed when the diary matures – do not merely assume that payments have resumed or will automatically start up again.

NOTE: The PC jurisdiction may change by the time the diary matures. Be sure the diary will mature in the correct PC.

D. Third party settlements involving Federal WC

The Federal Employees Compensation Act (FECA) requires the third party to reimburse the government for all of FECA WC paid. This reimbursement must be paid before releasing any settlement funds to the individual. FECA also authorizes the government to demand that the individual file suit against the third party and to terminate WC if the NH refuses to sue.

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DI 52105.010 - Third Party Settlements - 02/05/2013
Batch run: 07/10/2023