Martha is a great employee. She’s been working at your business for years. Let's say this hypothetical business turns energetic snarfles into adorable bozziwops. One day, Martha is in the bozziwop warehouse when a big, fat snarfle comes bounding in and knocks a crate of bozziwops off a shelf and onto Martha. Martha is hurt very badly. Her legs are broken, and she’s suffered a concussion. Luckily, some fuzzy bozziwops cushioned her fall and prevented worse injuries.
Martha goes to the hospital for treatment. A few days later, she makes a Workers’ Comp claim to get all the benefits she’s entitled to, such as…
- Coverage for her hospital bills and ambulance ride.
- A portion of her missed wages.
- Temporary total disability payments (because of her broken legs, she can’t work for quite some time).
She contacts you because she is covered under your business’s Workers’ Compensation Insurance. You give her the necessary paperwork and are relieved to hear she holds no ill feelings toward you. Snarfles can easily escape, run amok, and cause havoc, after all. It’s a dangerous business despite the adorableness.
The insurance company accepts the claim and offers Martha a disability payment plan and some funds for her medical bills. Martha now has a choice: does she accept this offer, does she press for a lump sum settlement, or does she negotiate for a larger structured settlement?
If she decides to pursue a larger settlement, negotiations will be between her, her attorney, and your insurance company. Your role is very limited. Still, it’s a good idea to stay informed and facilitate communication between the parties, if only to decrease the chance of being named in a lawsuit down the road.
With that in mind, let's take a look at how a settlement works.
Calculating Workers' Comp Settlements
Before any settlement is reached, Martha and her attorney calculate what they think the insurance company should pay out. The settlement will eventually take into account…
- Balances on hospital bills, ambulance rides, etc.
- Future treatments (e.g., surgery) and the probability that she’ll need them.
- Lost wages or future wage loss.
- Disability payments.
- Attorney fees.
- State Workers’ Comp laws and relevant restrictions.
The settlement may either be a lump sum or a structured payment plan. In exchange for a lump sum, the insurance company may be absolved from paying anything to Martha in future for the injury. However, that provision depends on state regulations (some don't allow it).
Once the calculation is finalized, Martha and her attorney will negotiate with the insurance company.
Negotiating the Workers' Compensation Settlement
It’s unlikely that the insurance company will pay for everything that Martha asked for, but if it's willing to negotiate, the insurer and Martha's attorney might settle on a number that both parties agree on. (Read more about how to negotiate a settlement.)
If the parties don’t settle or aren’t willing to negotiate, Martha and her attorney may decide to go to trial, sometimes called a Worker’s Comp hearing.
The Workers’ Comp Hearing
During the trial, a Workers’ Comp judge will approve of a settlement they think is fair. It's a relatively informal process. Hopefully, Martha knows how to get a fair deal from her Workers' Comp settlement.
A risk that Martha takes by going to a Workers' Comp hearing is that the judge may award her less than she asked for – sometimes even less than what the insurance company offered to pay. This is unlikely but still possible under the right circumstances.
After the hearing, the settlement process is complete. The insurance company pays the settlement, and Martha continues to recover. Eventually, she gets well enough to go back to work, turning snarfles and bozziwops again.
Through all of this, your duty as a business owner is to make the process as smooth as possible. Have all the necessary paperwork and contact information for your insurance company, and keep the employee informed on your company's policies on work injuries. By doing this, you can help resolve the issue quickly and get back to business.