Third-party negligence claims are legally complex, because both the employee and the employer have claims against any money damages that are recovered via an insurance settlement or a trial verdict awarded against a third party.

Any recovery from a third-party negligence claim must be split between the employee and the employer based on the formula set forth in the Wisconsin third-party liability statute.¹ This article provides some background on third-party negligence claims and discusses how third-party awards are divided (with an example).

Background: Workers' Compensation Benefits

Under Wisconsin's workers’ compensation regime, workers are prohibited from suing their employers for compensation related to workplace injuries. Instead, injured workers must apply for worker's compensation benefits under the Wisconsin Worker's Compensation Act.² Such benefits are an employee's exclusive remedy for workplace injuries.

Worker's compensation benefits must be paid by employers and their insurance carriers without regard to fault. The accident that resulted in a workplace injury might have been caused by the negligence of the employer or by the negligence of a third party. When a third party is legally at fault, this gives rise to “third-party negligence” claims, governed by Wis. Stat. section 102.29.

Take, for example, a common circumstance involving an automobile accident. A worker is given the task to deliver certain products to the employer's customer. The worker is given keys for the company vehicle, and takes State Route 63 to the customer's location. On the return leg of the journey, a big-rig truck smashes into the company vehicle, and the worker sustains injuries including whiplash, broken bones, cuts, and abrasions.

Because the worker was engaged in the employer's "business," the delivery worker has suffered a workplace injury and is entitled to workers’ compensation, even though the employer was not at fault. As the Wisconsin Department of Workforce Development (DWD) advises, "traffic accidents are compensable."

Because, in our example, the accident was caused by a third party – the driver of the big-rig truck – the worker can bring a claim against the third party to seek compensation for all compensable categories of damages. Workers’ compensation benefits will cover medical bills/expenses, wage loss, physical injuries, mental injuries, and disability. In the third-party negligence case, the worker can seek compensation for additional categories of damages including pain and suffering, loss of society, and more.

Third-party Negligence Awards Must be Split

As noted above, any recovery from a third-party negligence claim must be shared by the employee and the employer. This is because an employer – or an employer's workers’ compensation insurance carrier – has a statutory right to seek reimbursement of benefits paid for workers’ compensation.

Indeed, if a worker declines to bring a third-party negligence case, an employer or its insurer may bring such a case to seek reimbursement to recover for every type of compensation that the worker could have sought.³

How Are Third-party Negligence Awards Split?

The formula for dividing the proceeds of a third-party liability claim is set forth in Wis. Stat. section 102.29(1)(b), which provides:

• from the award/settlement, "costs of collection" are taken off the top – these costs include attorneys' fees and litigation expenses;

• from the remaining proceeds, the worker is entitled to recover one third;

• from the remaining two-thirds, the employer/worker's compensation insurance company is entitled to recover all monies that have been paid for such items as lost wages, medical bills, etc.; and

• any balance remaining is to be paid to the worker (unless future compensation benefit claims are expected).

Note that any settlement of a third-party liability is void, unless the settlement and the distribution of the proceeds are approved by the court handling the case or by the DWD.

Using our example from above, let's look at some hypothetical numbers. Assume that the big-rig driver and company are sued for third-party negligence, and that the eventual settlement or trial verdict award is $600,000. Assume further that the attorneys’ fees are based on a contingency fee agreement of 33 percent after litigation expenses and other costs are deducted.

To keep our math simple, assume that there are $20,000 in litigation expenses and costs. Let's also assume that the worker's compensation insurance carrier has paid out $200,000 for medical bills and lost wage claims.

Based on these hypothetical numbers, our third-party negligence recovery would be split as in Example 1:

Sometimes, a third-party liability settlement or a jury verdict award is not big enough to allow full reimbursement for the employer/insurance carrier. If that happens, the worker still receives his or her one-third, but the employer/insurance carrier is only reimbursed for what remains.

As an illustration, see Example 2. Let's vary our example from above and assume that the benefits paid by the employer/insurance carrier were $500,000. In that hypothetical, the worker would still receive the initial one-third ($133,333), but the employer/insurance carrier would receive only $262,222.22.

When Future Workers’ Compensation Benefits Are Expected

In some cases, there is an expectation that worker's compensation benefits will continue into the future, beyond the time of the third-party negligence case settlement. When that happens, the employer/insurance carrier retains its statutory right to seek reimbursement of benefits paid. This is accomplished by holding back, in a financial escrow, the remaining funds from the proceeds of the settlement/judgment or settle.

This article was originally published on the State Bar of Wisconsin’s Litigation Section Blog. Visit the State Bar sections or the Litigation Section web pages to learn more about the benefits of section membership.

Endnotes

¹ See Wis. Stat. §102.29.

² See Wis. Stat. §102.01 et seq.

³ See Thresherman’s Mutual Insurance, Co. v. Page, 217 Wis.2d 451, 577 N.W.2d 335 (1998).