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Section 20 Settlement Versus Order Approving Settlement

By on June 12, 2015 in Uncategorized with 1 Comment

Every New Jersey workers’ compensation practitioner must evaluate the benefits of a Section 20, (which is a lump sum full and final payment), versus an order approving settlement, (which involves an award of a percentage of disability under Section 22).  About twice as many cases settle under orders approving settlement in New Jersey than under Section 20 settlements.

Here are the main features of a Section 20:

  • A lump sum payment  — not weekly payments over time
  • No admission of liability by the employer
  • Not a workers’ compensation payment except for insurance rating purposes
  • The petitioner cannot reopen the case in the future
  • The petitioner and respondent must agree to the Section 20, and the Judge must also approve the settlement.  If any party rejects the Section 20, this option is out
  • There must be a genuine issue of causation, liability, jurisdiction or dependency; otherwise, there is no possibility to close the file under a Section 20

Here are the main features of a Section 22 order approving settlement:

  • The employee receives a percentage of disability, such as 20% of the arm
  • The employee can apply to modify the award within two years of the last payment of benefits and seek additional medical, temporary or permanent disability benefits
  • The employer accepts a specific medical condition or conditions, such as a torn rotator cuff or herniated cervical disc
  • If there is a reinjury to that body part in the future resulting in an increase in disability, the employer gets a credit for the percentage paid

Employers generally prefer Section 20 settlements because they close the particular file at issue for good.  However, Section 20 settlements are not obtainable where the accident is admitted and there is permanent disability resulting from the accident.  Carriers and third party administrators often as the following question:

If the employee has returned to work, does a Section 20 settlement make sense?

This is a complicated issue with many considerations, but the answer is that most of the time, it makes more sense to do a Section 20 even if the employee has returned  to work rather than admit the specific medical condition and deal with reopener rights.

There are two main objection that are raised to the notion of effecting a Section 20 on someone who has returned to work:

  1. What if the employee gets injured in the future?
  2. Can the employer still get a credit if there is a future injury to the same body part and the case has already  been resolved on a Section 20?

Let’s deal with question one first:  can’t the employee get reinjured in the future injury?  Yes, but this is not really a valid consideration.  Assume the employee has a herniated disc and has returned to work.  There is an issue of causation or liability which raises the potential for a Section 20.  The employer has two choices: pay the case under Section 22 for perhaps 22.5% permanent partial disability and accept that the herniated disc is compensable, or, pay a lump sum on a Section 20 admitting nothing.  Whichever option the employer chooses, the employee may have a future injury.  There is no way to predict that or stop that.  So when it comes to the potential for reinjury given that the employee is back to work at the time of settlement, it makes no difference whether the settlement was done under Section 20 or Section 22.  The manner of settlement will not prevent a future injury.

Question two is more complex and raises legitimate considerations: namely, will the employer get a credit for the prior payment if the prior payment was a Section 20 and not a percentage of disability?  There is no question that it is simpler to get a credit for a prior payment under Section 22.  If the employer settles the case for 22.5%, and the employee reinjures his back in three years, raising the disability percentage to 32.5%, the employer will get a credit for 22.5%.  So isn’t this the better way?  No, not really, because there are two ways of getting a credit in New Jersey:  one is for a prior payment or an award by subtracting the percentage paid, and the other is under the Abdullah case and N.J.S.A. 34:15-12(d), both of which permit employers to get credits for previous established disability even if there is no prior percentage award.

So how does an employer get a credit where the prior settlement was under Section 20 and the employee had a herniated disc at that time?  In the event of a new injury to the low back at some future date, the employer will send the prior medical records to the examining doctor, who will be asked to apportion the disability between that which existed before the new accident and that which exists after the new accident.  Sometimes this is not even necessary, as the parties can often negotiate the credit in court.

Skilled practitioners are aware that often it is very costly for an employer to have settled a case under an order approving settlement with a percentage of disability when the employer had a chance to do a Section 20 — particularly when the employee remained at work following the initial settlement. The following scenarios illustrates this point:

SCENARIO ONE

Let’s assume the employer chooses not to do a Section 20 on herniated disc back case and settles for 25% permanent partial disability at 2014 rates because the employer is worried about the fact that the employee has returned to work.  The settlement at 25% cost the employer $38,340.  The employer is thinking about future credits and decides to go for 25% rather than do a Section 20.  Three years from now the employee reinjures his back and now the judge feels that the new percentage of disability is 10% more or  35%. While that is only a 10% increase, the problem is that rates rise after 180 weeks.  That pushes the settlement of 35% to $82,530 with the credit for 25% being merely $38,430.  That 10% increase cost the employer $44,100!!!

Now consider if the employer settled the original case on a Section 20 for $40,000.  It paid a about $1,600 more to get the Section 20 on the 2014 case.

SCENARIO TWO

Assume there was an issue of causation or liability and all parties agreed on the Section 20 settlement in 2014 for $40,000.  The employee remained at work and a reinjury occurs in 2017 to the low back.  Remember, under the Section 20 there was no award percentage on the record — and that is a very good thing.  The parties agree that the petitioner’s back is 10% worse than it was in 2014. But because there was no prior percentage award, it is harder for the petitioner’s attorney to argue that the new award should be 35%.  The employer has a much better chance of negotiating a lower credit (which benefits the employer) precisely because there was no set percentage established in 2014.  The employer’s strategy is to settle the case for 30% credit 20%, which is $49,554 credit $28,992.  That is $20,562, or about $24,000 less than the scenario in which the employer paid under an order approving settlement!

In this situation, the employer saved over $22,000.  It paid slightly more for the original settlement but saved $24,000 when the reinjury occurred. Why did this happen?  Because the Section 20 gave the employer’s lawyer more flexibility in negotiations on the credit.  The lower the credit percentage, the better for the employer in this situation.

The lesson is that the employer is almost always better off with a Section 20 over an order approving settlement with a percentage of disability, particularly on significant cases.  To recap, the main advantages of the Section 20 over Section 22 are clear, even if the employee is back to work doing the same job for the employer:

  • The employer has not admitted liability for the condition at issue
  • The employer can still get a credit in the event of a future reinjury
  • The old case is closed forever and that case cannot be reopened
  • The employer has more flexibility in the future to argue for a lower credit, which is a critical advantage to employers

Having said all that, there is one last wrinkle in this analysis.  If the employee wants a huge premium for the Section 20 over the Section 22 settlement, that may not make sense for the employer.  In the example above, the order approving settlement at 25% cost the employer $38,430, and the Section 20 was only about $1,600 more to obtain at $40,000.  But if the employee wanted an additional $15,000 for the Section 20, that would negate the benefit for the employer.  So the amount of the premium that the employer pays to get a Section 20 is an important factor in this calculus.

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John H. Geaney

About the Author

About the Author:

John H. Geaney, an executive committee member and shareholder with Capehart Scatchard, began an email newsletter entitled Currents in Workers’ Compensation, ADA and FMLA in 2001 in order to keep clients and readers informed on leading developments in these three areas of law. Since that time he has written over 500 newsletter updates.

Mr. Geaney is the author of Geaney’s New Jersey Workers’ Compensation Manual for Practitioners, Adjusters & Employers. The manual is distributed by the New Jersey Institute for Continuing Legal Education (NJICLE). He also authored an ADA and FMLA manual as distributed by NJICLE. If you are interested in purchasing the manual, please contact NJICLE at 732-214-8500 or visit their website at www.njicle.com.

Mr. Geaney represents employers in the defense of workers’ compensation, ADA and FMLA matters. He is a Fellow of the College of Workers’ Compensation Lawyers of the American Bar Association and is certified by the Supreme Court of New Jersey as a workers’ compensation law attorney. He is one of two firm representatives to the National Workers’ Compensation Defense Network. He has served on the Executive Committee of Capehart Scatchard for over ten (10) years.

A graduate of Holy Cross College summa cum laude, Mr. Geaney obtained his law degree from Boston College Law School. He has been named a “Super Lawyer” by his peers and Law and Politics. He serves as Vice President of the Friends of MEND, the fundraising arm of a local charitable organization devoted to promoting affordable housing.

Capehart Scatchard is a full service law firm with offices in Mt. Laurel and Trenton, New Jersey. The firm represents employers and businesses in a wide variety of areas, including workers’ compensation, civil litigation, labor, environmental, business, estates and governmental affairs.

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  1. Thanks for the analysis. Good reference material for adjusters

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