|David J. Berg is an attorney with Latti & Anderson LLP, a Boston law firm specializing in the representation of injured fishermen, seamen, longshoremen, recreational boaters and cruise ship passengers nationwide.
You are about to settle a personal injury case, but there is a workers' compensation lien on the recovery, a not uncommon situation. Because your responsibility is to maximize your client's recovery, you prepare a petition for third-party settlement under Massachusetts General Laws chapter 152, section 15, which proposes to allocate a significant part of the settlement to the spouse's loss of consortium claim, and thus attempt to avoid part or all of the lien. How much can you allocate to the spouse before running afoul of the law?
The Massachusetts courts have only rarely addressed this issue. I will discuss these cases, and then consider leading cases from other states.
In Massachusetts, as in almost every state, one begins with the proposition that a workers' compensation insurer has a right under Chapter 152 to be fully reimbursed for all benefits that it has paid the employee.1 Under Section 15, all settlements of third-party cases must be approved either by the Superior Court or the Department of Industrial Accidents. The statute requires that a hearing be held and that the court (or DIA) "inquire and make a finding as to the taking of evidence on the merits of the settlement, on the fair allocation of amounts payable to the employee and the employee's spouse. . . ." The Superior Court's power to approve or reject a proposed settlement under Section 15 is limited to just that. It may only approve or reject the proposed settlement. If the court finds the proposed settlement to be unfair to the workers' compensation insurer, it may not reallocate the settlement more equitably.2 It must reject the settlement and send the parties back to the drawing board.
The most significant Massachusetts decision on the allocation of settlement proceeds is Hultin v. Francis Harvey & Sons, Inc.3 Hultin suffered an injury at work for which he received workers' compensation benefits and for which the workers' compensation carrier claimed a lien of $469,400. The Hultins filed a third-party case, which they settled for $650,000. After the third-party settlement agreement was executed, they filed a petition for approval of the third-party settlement with the Superior Court. They originally proposed to allocate 90 percent of the settlement proceeds to Mrs. Hultin and only 10 percent to Mr. Hultin. The insurer appeared at the hearing on the petition and objected. The Superior Court upheld this objection, finding that the allocation was unfair. The Hultins then revised their petition, and proposed to allocate only 79 percent of the settlement to the wife. In support of their petition, the Hultins submitted a memorandum that described the parties' damages in great detail.4 The insurer objected again. However, after another hearing, the Superior Court approved the settlement.
The insurer then appealed, but the Appeals Court upheld the settlement. It noted first that the insurer has a right to be fully reimbursed for all benefits that it paid to Mr. Hultin, but then pointed out that a consortium claim is "entirely independent and distinct from the personal injury claims of the employee" and thus that the insurer's lien "does not extend to that portion of the settlement that has been allocated to a nonemployee spouse for loss of consortium."5 After reviewing the severity of both plaintiffs' damages, it then accepted the Hultins' position that Mr. Hultin's "own conduct was a major contributing cause of the accident," that "may well have proved fatal to Mr. Hultin's negligence claims," but not to his wife's consortium claim.6 The Appeals Court noted that the Superior Court "explicitly recognized this point," stating Mr. Hultin's claim was more speculative than Mrs. Hultin's claim because of his comparative negligence.7 It held that section 15 required the trial judge "to consider and weigh the relative merits of the husband's and wife's claims when deciding whether or not the recommended allocation was fair in the circumstances," and that the allocation was indeed supported by the evidence.8
The Appeals Court stressed that Hultin involved "unique circumstances," and emphasized the "strong policy" against structuring a third-party settlement so as to deprive a lienholder of its right to recovery of the benefits that it has paid.9 The court noted that settlements structured to allocate the majority of the proceeds to the spouse "must be eyed by the court with a healthy dose of skepticism."10 It concluded by pointing out the need for a trial court to make findings of fact in ruling on a petition for allocation of a settlement, stating as follows: "Moreover, in unusual cases such as this, explanatory or subsidiary findings become particularly critical on the question of 'fair allocation' of settlement proceeds."11
Is there a "normal" allocation to the spouse? In Walsh v. Telesector Resources Group, Inc.,12 the plaintiffs proposed a settlement in which 99 percent of the third-party recovery would go to the spouse. The self-insured employer objected, and so a hearing was held. The Superior Court "accepted as factual the 'belief' of plaintiffs' counsel that the 'normal expected consortium settlement is in the range of [twenty percent] of the amount set aside for the injured spouse.'"13 After the hearing, the Superior Court held that the proposed allocation was unfair, and ruled that a fair allocation would be 30 percent to the spouse. The plaintiffs appealed, and the Appeals Court, citing Rhode v. Beacon Sales Co., held that the Superior Court did not have the power to impose an allocation upon the parties, and remanded the case for further proceedings.14 The Appeals Court did not address the Superior Court's finding that there is a normal allocation to the spouse for a consortium claim.
However, in the unpublished case of Henderson v. Borenstein,15 the Appeals Court last year summarily rejected an insurer's claim that a 50 percent allocation to the spouse was unfair, perhaps dismissing the idea that there is a normal allocation for a consortium claim, noting in a footnote: "Contrary to the insurer's assertions, Hultin did not establish a general rule that settlements allocating more than twenty percent to a consortium claimant are unreasonable."16
Finally, one last Massachusetts case should be addressed, at least for practitioners who may represent injured policemen or firemen. In Corbett v. Related Companies Northeast, Inc.,17 the plaintiff was a fireman who proposed to settle his third-party case and allocate 75 percent of the settlement to his wife. His employer objected, but the Superior Court held that the allocation was fair and reasonable, and that it had "no authority to consider the effect of the allocation on the city's lien."18 The Supreme Judicial Court transferred the appeal on its own motion, and held that the statutes providing benefits for injured policemen and firemen19 did not contain the same protection for the municipal employers of firemen that Massachusetts General Laws chapter 152, section 15 did. Accordingly, the court ruled that the city lacked standing to object to the allocation, and dismissed the appeal.20
Given the few Massachusetts cases on allocation of settlements, review of decisions from other jurisdictions becomes particularly helpful. While the statutes and procedures may differ among the various states, the courts are charged with the same duty - to determine if the allocation is fair and reasonable, taking into account the rights of the workers' compensation insurer to recover the benefits that it paid to the injured worker.
A leading case is Blagg v. F.W.D. Corporation.21 In that case, the parties first attempted to allocate 79 percent of the settlement to the spouse. The insurer appealed, and the allocation was vacated on appeal. Accordingly, the parties reallocated the settlement to grant 50 percent to the spouse. The trial court then held an evidentiary hearing on the matter during which both husband and wife gave extensive and detailed testimony regarding their respective damages.22 After the hearing, the trial court made detailed findings of fact and ruled the allocation was reasonable and in good faith. The insurer again appealed, but the allocation was upheld on appeal. The appeals court agreed with the trial court's findings that, "even though Marilyn (the spouse) did not experience the physical injuries and pain that were suffered by Bill, the personal, emotional impact of what had occurred was at least as significant for her as it was for her husband."23 In fact, in that case, the appeals court took the trial court one step further, writing that "we believe that Marilyn might have felt these terrible losses more keenly than Bill."24
In the case of Krause v. Merickel,25 the trial court's allocation of 62 percent of the settlement to the father of a 16-year-old boy who had become a quadriplegic was upheld over the objection of the state of Minnesota, which was providing medical coverage for the child. In that case, the parties had originally proposed to allocate 70 percent of the proceeds to the father, but the trial court lowered the father's share to 62 percent, an action that is not permitted in Massachusetts per Walsh. The standard in Minnesota is whether the allocation is "reasonable and not patently arbitrary" in light of the total settlement.26 The Minnesota Supreme Court held that each case must be reviewed on its merits, and that "no hard and fast mathematical ratio can be applicable to all cases without risking gross injustice."27 In approving the allocation, the court noted that the case, a swimming pool accident, would have been very difficult, that the settlement fell far short of compensating the child for his injuries, that the father had agreed to finance the litigation and that the state had been asked to share in the litigation expenses, but refused to do so. The court concluded that the father acted in good faith in attempting to protect the state's interest, and upheld the allocation.28
In the case of Lone v. Esco Elevators, Inc.,29 the parties allocated 48 percent of the settlement to the spouse. The Michigan Court of Appeals upheld the settlement, noting only that "courts and the Workmen's Compensation Bureau should be alert to [the possibility of disproportionate allocations to the spouse] and take appropriate actions to prevent it."30 In the early case of Brocker Manufacturing and Supply Co., Inc. v. Mashburn,31 the Maryland Court of Special Appeals upheld a settlement in which 58 percent was allocated to the spouse. The court summarily disposed of the insurer's claim that the allocation was disproportionate, holding: "We know of no theory of law, nor have we been referred to any by appellants, that would justify this Court's authorizing appellants to conduct a 'fishing expedition' into the circumstances surrounding Mrs. Mashburn's individual settlement."32
However, in the case of Tucker v. Clare Brothers Limited,33 the Michigan Court of Appeals ruled that a 75 percent allocation to the spouse was an attempt "to circumvent the [workers' compensation] lien by arbitrarily determining an allocation of the settlement," and remanded the case for an evidentiary hearing.34 Nevertheless, the court concluded by quoting Krause's admonition that no specific ratio should be used to determine the reasonableness of a spouse's damages.35 In Rains v. Kolberg Manufacturing Corp.,36 the Colorado Court of Appeals was presented with a settlement of a products liability case in which the injured plaintiff dismissed his claim against the third-party defendant and the wife agreed to a $100,000 settlement against the defendant.37 The workers' compensation insurer not surprisingly objected, and the court, citing Blagg and other cases, ruled that settlements that allocated a disproportionate amount to the spouse must be "carefully scrutinize[d] . . . to ensure that they are entered to in good faith."38 The court found that the trial court had not performed such an analysis, and remanded the case for further proceedings. The court mandated that the trial court should "examine the totality of the circumstances, including, but not limited to, the nature and extent of the claimed loss of consortium, the potential value of the dismissed claim, and the expectations and motivations of the settling parties."39
In the case of DeMeulenaere v. Transport Insurance Company,40 the Wisconsin Court of Appeals, after urging "trial courts to closely scrutinize settlements of this nature which appear to circumvent the effects of the distribution formula contained in [the Wisconsin workers' compensation lien statute]," remanded a case where the trial court's approval of a 25 percent allocation to the spouse did not state why it was a fair and reasonable allocation.41 In the case of Page v. Hibbard,42 the Illinois Supreme Court did likewise, remanding a case where the trial court's approval of a 50 percent allocation to the spouse did not explain why it was fair and reasonable.43 Finally, in the case of Dearing v. Perry,44 the plaintiffs attempted to allocate the entire settlement to the spouse. In ruling upon this matter, the trial court rejected that allocation and reallocated 48 percent to the spouse. Even though the Massachusetts Superior Court does not have this authority, the Indiana appellate court's reaction is quite relevant for the purposes of this discussion. The appeals court reversed the trial court, rejected the allocation, and ruled that the entire settlement was available to the insurer for the purpose of recovering on its lien. It sharply criticized the plaintiffs, noting that they negotiated their settlement "behind [the insurer's] back," and held that spouses and a third party "cannot negotiate a settlement in which the employer's insurer is not a party whereby a substantial portion of the total amount is allocated to loss of consortium."45 As in other cases, however, the court left "substantial" undefined.
What can be concluded from this? While no state has imposed any hard and fast rule as to what percentage of a settlement may be fairly allocated to a spouse, and at least two states, and perhaps Massachusetts per the unpublished Henderson case, have ruled that the converse exists, what is clear is that any time that plaintiffs seek to allocate settlement proceeds in such a way so as to deprive a lienholder of its right to recover all or part of its lien, the plaintiffs' counsel must be prepared to submit a memorandum and detailed affidavits from both plaintiffs explaining how and why the spouse is entitled to the allocation requested. Counsel may wish to seek an evidentiary hearing if he/she thinks that it may be a close call. Counsel should certainly be prepared to address all of the factors set forth in Rains, including, most importantly, the expectations and motivations of the settling parties. The plaintiffs should also submit requests for findings of fact and rulings of law or at the very least a detailed proposed order so that the Appeals Court will have a good record with which to uphold the allocation.
1. Rhode v. Beacon Sales Co., 416 Mass. 14, 17 (1993).[back]
2. Rhode, 416 Mass. at 18-19.[back]
3. 40 Mass. App. Ct. 692 (1996).[back]
4. Id. at 697.[back]
5. Id. at 695.[back]
6. Id. at 697-98.[back]
8. Hultin, 40 Mass. App. Ct. at 698-99.[back]
9. Id. at 699.[back]
12. 40 Mass. App. Ct. 227 (1996).[back]
13. Walsh, 40 Mass. App. Ct. at 229-30.[back]
14. Id. at 233-35.[back]
15. 56 Mass. App. Ct. 1114 (2002) (unpublished decision).[back]
16. Henderson, 56 Mass. App. Ct. at 1 n. 3. Since other states have held that no hard and fast rule should be applied in reviewing the fairness of allocations, as will be discussed infra, the Appeals Court will hopefully choose to publish its decisions in future cases on this issue.[back]
17. 424 Mass. 714 (1997).[back]
18. Corbett, 424 Mass. at 716.[back]
19. Mass. Gen. Laws ch. 41, ßß 100 and 111F.[back]
20. Corbett, 424 Mass. at 721-22 & nn. 12-13. It should also be noted that the court did not comment, even in dicta, on the propriety of the allocation.[back]
21. 637 N.E.2d 1233 (Ill. App. 1994).[back]
22. Blagg, 637 N.E.2d at 1237-38.[back]
23. Id. at 1238.[back]
24. Id. In support of its conclusion, the appeals court cited Diminskis v. Chicago Transit Authority, 508 N.E.2d 215 (Ill. App. 1987), a case in which a jury awarded 50 percent of the total damages to the spouse for loss of consortium.[back]
25. 344 N.W.2d 398 (Minn. 1984).[back]
26. Krause, 344 N.W.2d at 403.[back]
27. Id; see also Rascop v. Nationwide Carriers, 281 N.W.2d 170, 173 (Minn. 1979) (approving a 30 percent allocation to the spouse); Ossenfort v. Associated Milk Producers, Inc., 254 N.W.2d 672, 686 (Minn. 1977) (approving a 33 1/3 percent allocation to the spouse).[back]
28. Krause, 344 N.W.2d at 404.[back]
29. 259 N.W.2d 869 (Mich. App. 1977).[back]
30. Lone, 259 N.W.2d at 874 n.7[back]
31. 301 A.2d 501 (Md. App. 1973).[back]
32. Brocker, 301 A.2d at 508; see also Hunley v. Silver Furniture Mfg. Co., 38 S.W.3d 555 (Tenn. 2001) (50 percent allocation to the spouse was approved) (see also footnotes 4 and 5 collecting cases on this subject), McGranahan v. McGough, 820 P.2d 403 (Kan. 1991) (30 percent allocation to the spouse was approved).[back]
33. 493 N.W.2d 918 (Mich. App. 1992).[back]
34. Tucker, 493 N.W.2d at 922.[back]
35. Id. at 922 n. 4. The court also ruled that, "in order to aid appellate review, the trial court must state on the record the findings and conclusions justifying its decision." Id. [back]
36. 897 P.2d 845 (Col. App. 1994).[back]
37. Rains, 897 P.2d at 847.[back]
38. Id. at 848.[back]
40. 342 N.W.2d 56 (Wis. App. 1983).[back]
41. DeMeulenaere, 342 N.W.2d at 60.[back]
42. 518 N.E.2d 69 (Ill. 1987).[back]
43. Page, 518 N.E.2d at 73.[back]
44. 499 N.E.2d 268 (Ind. App. 1986).[back]
45. Dearing, 499 N.E.2d at 272.[back]