Can comp insurer suspend death benefits?
In October 2000, Manny Garcia, an employee of Alamito Construction Company, suffered a fatal on-the-job injury. After his death, Alamito’s workers compensation carrier, Texas Mutual Insurance Company, began paying death benefits to Garcia’s widow and then-minor child.
Later the Garcias (including Manny’s two adult sons who were not entitled to death benefits from Texas Mutual) filed a third-party action against Hansen Construction Company, alleging that Hansen was responsible for Manny’s death. On August 16, 2004, Hansen’s counsel sent counsel for the Garcias the following letter:
Dear Mr. Scherr:
I write to confirm our telephone conversation of August 16, 2004, wherein your clients have agreed to accept a settlement offer in the following amounts in exchange for a full and final release of all claims in the above-referenced case:
Further, the plaintiffs must satisfy and my client must be fully and completely indemnified from any and all medical expenses, third-party claims, or other liens or claims arising from this incident. This letter will serve as our interim agreement until we can execute a formal release and dismissal. Once I receive the settlement checks, I will forward them to your attention along with the appropriate settlement documents for your clients’ signatures.
If my understanding is correct, please sign in the space provided below and return to me. If my understanding is incorrect, please advise me immediately.
Counsel for the Garcias signed the letter. But before the interim agreement could be funded or paid, Texas Mutual suspended the payment of death benefits to the eligible Garcias and intervened in the Hansen suit to assert a right to reimbursement from any third-party settlement funds. Litigation in the Hansen suit continued; Texas Mutual, Hansen, and the Garcias entered mediation; the Garcias made concessions to Texas Mutual regarding amounts to be assigned to Texas Mutual for reimbursement purposes and future credits; and Hansen distributed funds to Texas Mutual and the Garcias on August 19, 2005. All parties agreed that the offset was exhausted in November 2011 and that Texas Mutual had resumed paying some benefits.
While the Hansen suit was still pending, however, the Garcias challenged Texas Mutual’s suspension of death benefits in an administrative proceeding before the Texas Division of Worker’s Compensation (DWC). The DWC addressed four questions, with the final three questions being added at the request of Texas Mutual:
Is the carrier entitled to suspend the beneficiaries’ benefits to offset a third-party recovery?
On what date did Maria Garcia and Anthony Garcia recover a third-party settlement?
What were the correct accrued benefits paid by Texas Mutual on the date of the third-party settlement per Texas Labor Code Section 417.002(a)?
Because of the third-party settlement recovery, if any, what is the correct amount of the advance on future benefits per Texas Labor Code Section 417.002(b)?
DWC sided with Texas Mutual, holding that the insurer appropriately suspended death benefit payments beginning on the date the Garcias signed the interim agreement with Hansen. The district court sitting on appeal disagreed, finding that Texas Mutual could not have appropriately suspended payment of death benefits until a later date when the Hansen litigation settlement was actually paid and rendering summary judgment accordingly. Texas Mutual appealed.
On appeal, the court stated that one central question was at issue: What constitutes a recovery sufficient to suspend benefits under Section 417.002?
Because the DWC determined that the Garcias “recovered” an award when they signed the interim agreement with Hansen even though the agreement was never funded and the terms of that agreement were never executed, that determination was dispositive in the appellate court’s interpretation of the relevant statutes. Section 417.002, when read in the context of its sister provisions dealing with third-party liability, was found to be not ambiguous. The court agreed with the Garcias that recovery occurs for Section 417.002 benefit suspension purposes once monies are obtained from a third-party wrongdoer.
Texas Mutual argued that requiring a carrier to continue paying out benefits when a covered employee attempts to negotiate a third-party settlement that could potentially prevent the carrier from recovering first money was unjust. The court noted that the state labor code imposes a statutory duty on carriers to continue paying benefits until the DWC resolves the controversy.
The court saw nothing in the statutes that would prevent a carrier from later recouping benefits it believed were wrongly paid out pending a final DWC decision. The DWC erred in determining that recovery occurred when the interim agreement was signed. The court held that, in the absence of a formal judicial or administrative decree, recovery occurs once third-party funds are actually disbursed, at which point a carrier may suspend benefit payments if the conditions set out in Section 417.002 are otherwise met; i.e., the worker’s post-reimbursement remainder recovery is sufficient to cover future expenses in whole (at which point benefit payments may cease entirely) or in part (at which point the carrier may treat the award as an advance against future benefits until the amount of the award is exhausted).
The judgment of the trial court was affirmed.
Texas Mutual v. Garcia-Texas Court of Appeals, El Paso-April 3, 2019-No. 08-15-00075-CV.