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CHAPTER 3-501 - SECTION 8(I)

1. Purpose and Scope. This Chapter describes the procedures for processing and evaluating settlements under section 8(i) of the Act.

2. Policy. The Longshore and Harbor Workers' Compensation Act Amendments of 1984 changed the criterion for evaluating a settlement from "the best interests of an injured employee" to whether or not the settlement is "inadequate or procured by duress". The regulations concerning settlements may be found at 20 C.F.R. sections 702.241 to .243.

3. Role of the District Office. As a general rule, the DD/CE should neither encourage nor discourage agreed settlements. The DD/CE should, however, insure that the application is complete and determine whether both parties are represented by counsel. After a complete application has been submitted, the DD/CE is to determine whether it is adequate and/or has been procured by duress.

4. Types of Settlements.

a. The parties may submit a settlement application solely for compensation, or solely for medical benefits or for compensation and medical benefits combined. If either portion of a combined compensation and medical benefits settlement application is disapproved the entire application is disapproved unless the parties indicate on the face of the application that they agree to settle either portion independently.

b. A settlement may be considered for any claim under the Act, including section 49 and survivors benefits. However, an agreement among the parties to settle a claim is limited to the rights of the parties and to claims then in existence; settlement of disability compensation or medical benefits shall not be a settlement of survivor benefits nor shall the settlement affect, in any way, the right of survivors to file a claim for survivor's benefits. Only past claims for past discriminatory acts can be settled under section 49. Any settlement agreement that attempts to include a future section 49 claim would be invalid and should not be approved.

c. A settlement may also be "structured" in that payment of the agreed settlement may extend over the lifetime of the claimant and may even involve the use of annuity policies issued by life insurance companies to provide continuing payments. It is recommended that the following or similar language be contained in all structured settlement orders to assure that only upon the continued payment to the claimant of the agreed upon settlement shall the liability of the EC be discharged: "Upon payment of the aforesaid monies, the employer and carrier shall be forever discharged and released of any further liability for payment of compensation to the employee under the Longshore and Harbor Workers' Compensation Act". Should the carrier or any other party designated to make the continuing payments fail to make the payments, liability to make the payments shall revert to the original EC.

5. Required Information.

a. The settlement application shall be a self-sufficient document which can be evaluated without further reference to the administrative file. The application shall be in the form of a stipulation signed by all parties and shall contain a brief summary of the facts of the case to include:

(1) a description of the incident,

(2) a description of the nature of the injury to include the degree of impairment and/or disability,

(3) a description of the medical care rendered to date of settlement, and

(4) a summary of compensation paid and the compensation rate or, where benefits have not been paid, the claimant's average weekly wage.

b. The settlement application shall also contain the following:

(1) A full description of the terms of the settlement which clearly indicates, where appropriate, the amounts to be paid for compensation, medical benefits, survivor benefits and representative's fees. Such fees shall be itemized as required by 20 C.F.R. section 702.132.

(2) The reason for the settlement, and the issues which are in dispute, if any.

(3) The claimant's date of birth and, in death claims, the names and birth dates of all dependents.

(4) Information on whether or not the claimant is working or is capable of working. This should include, but not be limited to, a description of the claimant's educational background and work history, as well as other factors which could impact, either favorably or unfavorably, on future employability.

(5) A current medical report which fully describes any injury related impairment as well as any unrelated conditions. This report shall indicate whether maximum medical improvement has been reached and whether further disability or medical treatment is anticipated. If the claimant has already reached maximum medical improvement, a medical report prepared at the time the employee's condition stabilized will satisfy the requirement for a current medical report. A medical report need not be submitted with agreements to settle survivor benefits unless the circumstances warrant it.

(6) A statement explaining how the settlement amount is considered adequate.

(7) If the settlement application covers medical benefits, an itemization of the amount paid for medical expenses by year for the three years prior to the date of the application shall be included. A statement in the application to the effect that the employer/carrier has not paid for any medical treatment in the past three years is not sufficient. The parties should be required to provide an itemization of all medical treatment expenses paid in the last three years, whether paid by employer/carrier, Medicare, other health plans or by the claimant, as well as itemization of all unpaid medical bills.

An estimate of the claimant's need for future medical treatment as well as an estimate of the cost of such medical treatment shall also be submitted which indicates the inflation factor and/or the discount rate used, if any. The DD may waive these requirements for good cause. The case file must contain a memo explaining the "good cause" basis for waiving this requirement. However, for settlements that come within the Medicare pre-approval threshold (see paragraph 12.a., below) greater scrutiny should be given to determine if the proposed settlement is adequate, and waiver of such medical documentation is not appropriate.

(8) Information on any collateral source available for the payment of medical expenses. Medicare and Medicaid are not acceptable collateral sources of medical care.

6. Submission of the Application. When the parties to a claim for compensation, including survivor benefits and medical benefits, agree to a settlement they shall submit a complete application to the DD. The application shall contain all the information outlined in paragraph 5 above, and as provided by 20 C.F.R. 702.243(a), shall be sent by certified mail, return receipt requested or submitted in person, or by any other delivery service with proof of delivery to the DD. Submission by facsimile (fax) is not specifically authorized by the regulation and is not considered to reasonably fall under the umbrella of a “delivery service with proof of delivery.” Further, since section 8(i)(1) provides that a settlement application will be deemed automatically approved unless it is specifically disapproved by the DD within 30 days of its submission, being able to establish when the application was received by the DD is important. While a sender can confirm that a fax was transmitted successfully, the sender cannot confirm that the DD actually received the settlement application. A settlement application submitted to the DD by fax should not be accepted and the parties should be advised to submit the application in a manner consistent with 20 C.F.R. 702.243(a).

Failure to submit a complete application shall toll the thirty day period mentioned in section 8(i) of the Act until a complete application is received, (see subparagraph 9c, below).

7. Initial Review.

a. Timeliness. Section 8(i) of the Act now requires the approval of a settlement within thirty days unless it is found to be inadequate or procured by duress. Settlements must therefore be considered as soon as possible after receipt. Action to either approve, disapprove, or toll the thirty day period is to be taken within twenty-five days of receipt of the application.

b. District Director Initial Review. When a settlement application is received and date stamped in the mail room it should be taken to the DD immediately. The DD should review the settlement to determine if there is anything which would require the thirty day period to be tolled. The DD shall initial and date the first page of the settlement application when reviewed. At this time the DD should also review the application to determine if the threshold requirements for Medicare pre-approval of settlements are met, and to determine whether to issue appropriate notice to the parties (see paragraph 11 and 12, below).

8. Evaluation.

a. General. When presented with a settlement, the DD shall review the application and determine whether, considering all of the circumstances, including where appropriate, the probability of success if the case were formally litigated, the amount is adequate. If the DD has any questions regarding the adequacy of the settlement, particularly in those cases where the claimant is not represented, the DD should personally meet with the claimant or, where this is not possible, discuss the terms of the settlement with the claimant by telephone.

b. Basic Adequacy Criteria. The criteria for determining the adequacy of a settlement shall include, but not be limited to:

(1) The claimant's age, education and work history;

(2) The degree of the claimant's disability or impairment;

(3) The availability of the type of work the claimant can do; and

(4) The cost and necessity of future medical treatment (where the settlement includes medical benefits).

c. Additional Adequacy Criteria.

(1) If a case is being paid pursuant to a final compensation order, and there are no substantive issues in dispute, an additional criterion must be used to evaluate the adequacy of a settlement, see 20 C.F.R. section 702.243(g). A settlement amount which does not equal the present value of future compensation payments commuted, computed at the discount rate specified below, shall be considered inadequate unless the parties to the settlement show that the amount is adequate.

(2) The probability of the death of the beneficiary before the expiration of the period during which he or she is entitled to compensation shall be determined according to the most current United States Life Table, as developed by the United States Department of Health and Human Services, which shall be updated from time to time.

(3) The discount rate shall be equal to the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price for the last auction of 52 weeks U.S. Treasury Bills settled immediately prior to the date of the submission of the settlement application. Effective December 21, 2000, the U.S. Treasury discontinued the sale of 52 week U.S. Treasury Bills. The weekly average 1-year constant maturity Treasury yield for the calendar week preceding the date of submission of the settlement application may be used in its stead.

(4) For settlements submitted involving injuries covered by section 8(c)(1)-(20) of the Act, where there is only one medical opinion, e.g., the treating physician's, the settlement should not be based on a lower percent than that established by that physician. A proposed settlement for a lesser amount should be considered inadequate and should be rejected.

d. Voluntary Termination of Employment as a Condition of Settlement. Occasionally the parties to a settlement will include in the settlement application a stipulation that the claimant agrees to voluntarily resign from his/her employment as a condition of the settlement. Section 8(i) itself provides the district director with authority to disapprove settlement proposals containing termination of employment language whenever the circumstances of the case support a determination that the termination provision renders the settlement “inadequate” or results from “duress”. However, various factors are problematic toward defending such settlement denials on appeal. Among those are the difficulty on appeal of overcoming the voluntary resignation language when the claimant is represented by counsel, the historical trend toward a more liberal acceptance of settlements in amendments to the statute, and the lack of court cases specifically prohibiting the inclusion of voluntary resignation language in a section 8(i) settlement agreement. Therefore, defense of a denial based solely on termination of employment language is unlikely to prevail on appeal. Evaluation of settlement proposal should take into consideration all of the circumstances of the case as they relate to the statutory provisions of adequacy and lack of duress. Consequently, settlement applications are not to be denied based solely on the fact that they contain termination of employment language.

9. Decision.

a. Approval. Approval of a settlement is to be done by compensation order. This order must be served within twenty-five days of receipt of the settlement application.

b. Disapproval. The disapproval of a settlement is to be done by a written statement, over the signature of the DD, which fully describes the grounds for the denial. This statement is to be served by certified mail within twenty five days of receipt of the application. The denial statement must advise the parties of their right to request a formal hearing before an ALJ, or to submit an amended application to the DD. If the parties request a formal hearing, the procedures outlined in PM 4-600 are to be followed. At the time of referral for formal hearing, a copy of the written statement denying the settlement is to be transmitted to the OALJ with the pre-hearing statements.

c. Toll the Thirty Day Period. Both the Act, under section 8(i), and the regulations, at 20 C.F.R. section 702.243(b), provide that if the parties are represented by counsel, as defined under 20 C.F.R. section 702.241(h), the settlement shall be deemed approved unless specifically disapproved within thirty days after receipt of a complete application. It is therefore important that all settlement applications be carefully reviewed within the thirty day period and the parties promptly notified by regular mail of any deficiency. The thirty day period provided for in the Act and the regulations does not begin until the deficiency is corrected, 20 C.F.R. section 702.243(b). The notice of deficiency is to specifically suspend the running of the thirty day period.

10. Calculation of 30 Day Period. The thirty day period for consideration of a settlement application shall be calculated from the day after receipt. If the last day of this period is a holiday or occurs during a weekend, the next business day shall be considered the thirtieth day.

11. Medicare and Workers' Compensation Medical Payments. Section 1862(b)(2) of the Social Security Act provides that Medicare payments may not be made for any item or service to the extent that payment has been made or can be reasonably expected to be made under a workers' compensation law. The Medicare Secondary Payer Statute (42 U.S.C. sec. 1395y(b)(2)) was enacted in 1980 to prevent the burden of such expenses, which should be paid by other insurance plans, including workers' compensation, from being shifted to Medicare. Pursuant to this statute, in recent years the Centers for Medicare and Medicaid Services (CMS), the federal agency that administers Medicare, has undertaken a comprehensive effort to ensure that Medicare does not pay for expenses covered under a primary payer plan, and to collect money owed to Medicare for the payment of such expenses.

The Medicare Secondary Payer Statute provides, in part, that Medicare may not pay for an individual's medical treatment if payment can "reasonably be expected to be made promptly" under workers' compensation. In such instances, Medicare is the "secondary payer" while the insurance company or some other responsible party remains the "primary payer." This statute further provides that, in the event Medicare does pay such expenses, those expenses shall be paid subject to reimbursement.

12. Medicare and Section 8(i) Settlement. The private parties must take into consideration Medicare's interests in structuring the settlement. In general, this interest involves ensuring that the parties do not use the terms of the settlement to evade the employer's lawful responsibility for the medical treatment of the employee's work-related injury or illness. If the private parties do not account for Medicare's interests, Medicare may later refuse to cover some, or all, of the claimant's medical expenses for treating his or her work-related injury or illness. The parties may also be sued by the Department of Health and Human Services for improperly shifting medical expenses from the legally liable employer or insurance carrier to Medicare. For these reasons, special attention must be paid to section 8(i) settlement applications submitted for approval which include settlement of medical benefits. Claimants and their representatives should be made aware that settlements under the LHWCA are subject to Medicare requirements in certain cases.

a. Medicare requires pre-approval of workers' compensation settlements if either one of the following is true.

(1) Any settlement, regardless of amount, if the claimant is currently entitled to Medicare; or

(2) Any settlement greater than $250,000, AND the claimant may reasonably expect to become eligible for Medicare within 30 months of the settlement date.

b. Notice to Claimants and Representatives. The DD has no authority to require the parties to a section 8(i) settlement to obtain Medicare pre-approval, nor to deny the settlement as inadequate absent such pre-approval. The DD's authority extends only to ensuring that a settlement is not "inadequate or procured by duress." However, for the protection of the claimant, who may be unwittingly relying on Medicare to pay all or part of his future work-related medical expenses, it is the duty of the DD to alert the settling parties to Medicare's pre-approval requirements and to the potential loss of Medicare benefits. The DD should encourage the parties to consult with CMS for answers about their legal obligations under Medicare. Therefore, when a settlement application is received in the district office, as a part of the "initial review" of the application by the district director (see paragraph 7, above), the following steps should be taken.

(1) The DD shall review the application to determine if either of the two requirements for Medicare pre-approval of settlements involving medical benefits are applicable (see paragraph 12.a., above).

(2) If it appears that the Medicare pre-approval requirements apply, a copy of the information leaflet "Notice to Claimants and Representatives: Settling Claims" (Exhibit 28, LHWCA PM Ch. 10-300) should be immediately sent to all parties to the settlement, including both the claimant and his representative, and the representative of the employer/carrier. In the case of an unrepresented claimant, the DD should ensure that the claimant understands the consequences of a section 8(i) settlement without Medicare pre-approval, and if he/she still wishes to proceed, extra care should be taken to ensure the adequacy of the medical settlement.

The district office should develop an appropriate cover letter for transmitting the Notice. The cover letter should contain a request that the parties acknowledge having considered Medicare requirements as they may pertain to the settlement. The following language is recommended: "It is requested that the parties review the enclosed Notice and the provisions of the Medicare Secondary Payer Statute, and advise this office within ten days that consideration has been given to Medicare requirements for pre-approval of workers' compensation settlements." A sample cover letter can be found at PM Exhibit 29 (LHWCA PM Ch. 10-300). The district office cannot require the parties to respond to such a request, nor toll the thirty-day period for failure to do so. However, special care must be taken in review of the medical evidence in any application involving medical settlement cases. Failure of the parties to provide the required historical medical treatment information and estimate of need for future medical treatment as required (20 CFR 702.242(a)(7)), constitutes an incomplete application and could result in denial of the application on ground of inadequacy (see paragraph 5.b.(7), above).

c. Referral to OALJ. If the parties to a disapproved settlement request a hearing before an ALJ pursuant to 20 CFR §702.243(c), and the reason for disapproval is inadequacy of the medical settlement, the DD should so indicate on the transmittal letter. A copy of the written statement which was sent to the parties denying the settlement, is to be transmitted to the OALJ with the pre-hearing statements (see paragraph 9.b., above).