Decoding Workers' Compensation Liens in Arizona: Impact on Third-Party Lawsuits

In Arizona, when an employee suffers a work-related injury due to the negligence of a third party, the interplay of workers' compensation law and personal injury law creates a complex scenario involving workers' compensation liens. Here's a breakdown of what constitutes these liens and how they affect civil suits against negligent third parties:

What's Included in a Workers' Compensation Lien?

• Compensation Benefits: This refers to the indemnity payments made to the injured worker for lost wages during their recovery period.

• Medical Benefits: This encompasses all medical expenses paid by the workers' compensation carrier for treatment related to the work injury.

• May Not Include Non-Statutory Charges: The lien should not include expenses like legal fees, independent medical examinations, nurse consultant fees, or defense attorney costs. These charges are not considered compensable benefits under Arizona law.

How Liens Apply to Third-Party Lawsuits

The purpose of the workers' compensation lien is to prevent double recovery by the injured worker. When an employee sues a third party for negligence, the workers' compensation carrier or the Special Fund (if the employer is uninsured) has a statutory right to recover the benefits they paid from the proceeds of the third-party lawsuit.

Here's how it works in practice:

1. Notice of Lien: The injured worker is obligated to notify the workers' compensation carrier or the Special Fund about the third-party lawsuit and provide updates on the case's progress.

2. Lien Assertion: Once a settlement or judgment is reached in the third-party lawsuit, the carrier will assert their lien against the "amount actually collectable". This means the total recovery minus reasonable and necessary expenses, including the injured worker's attorney fees.

3. Lien Satisfaction: The carrier is entitled to reimbursement of their lien from the settlement or judgment proceeds. The remaining funds, after deducting the lien and associated costs, are then disbursed to the injured worker.

4. Future Credit: In addition to the lien, the carrier also receives a "future credit" for the net amount the injured worker receives from the third-party settlement. This credit acts as a deductible against any future benefits the worker might be entitled to if they reopen their workers' compensation claim.

Navigating the Complexity of Liens

Workers' compensation liens can significantly impact the outcome of a third-party lawsuit. Injured workers and their attorneys should carefully consider these factors:

• Lien Reduction: The injured worker's attorney can attempt to negotiate a reduction of the lien with the carrier. Arguments can be made based on employer fault, comparative negligence, or the strength of the third-party case.

• Aitken Doctrine: In cases where the employer shares fault for the injury, the lien can be reduced proportionately. However, this reduction typically only applies when a jury verdict establishes the employer's percentage of fault.

• Settlement Approvals: If the proposed settlement of the third-party claim is less than the lien amount, the carrier's consent is required before finalizing the settlement.

• Understanding Future Credit Implications: The future credit can effectively extinguish future workers' compensation benefits unless negotiated otherwise.

Workers' compensation liens are a crucial element in personal injury cases involving work-related injuries. A clear understanding of their nature and implications is essential for both injured workers and their legal counsel. By diligently navigating these intricacies, parties can work towards a fair resolution that protects the rights and interests of all involved.

It's important to consult with a workers' compensation certified specialist who has experience in third-party settlements.