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CHAPTER 3-600 - THIRD PARTY CASES

1. Purpose and Scope. This Chapter addresses situations in which an employee is injured during the course of his/her employment and the injury is caused by the action or the negligence of a third party. The DD/CE should identify these cases as early as possible in the adjudication process so as to simplify procedures and insure that all the parties in interest are aware of their responsibilities.

2. Basic Procedures. When the CE first becomes aware of the existence of a third party claim or civil suit, the injured employee is to be notified via Form LS-526, Letter to Employee Explaining Need for Employer's Approval (Exhibit 43, PM 10-200). A diary action in the LCMS is required when this form is sent. In addition, four copies of Form LS-33, Approval of Compromise of Third Person Cause of Action (Exhibit 10, PM 10-200) are to be attached to Form LS-526. Receipt of the properly executed Form LS-33 requires a diary action in the LCMS.

3. Employee Options. When an employee sustains an occupational injury that is caused by the negligence of a third party, the employee need not elect between a compensation remedy and a third party civil suit. Employees may do one of the following:

a. Employees may elect to file a claim for compensation; or

b. Employees may file a civil suit against the third party for negligence; or

c. Employees may elect to pursue both actions simultaneously.

4. Purpose of Section 33. Section 33 is designed to prevent injured employees from receiving benefits under the Act and proceeds from a successful negligence suit, in effect double recovery for the same injury. It is also designed to insure that the subrogation interests of ECs and the Special Fund are fully protected. It is also designed to protect the injured worker when he/she settles a third party negligence action for an amount which is less than he/she would otherwise be entitled to receive in compensation benefits.

5. Section 33 Time Limits. An employee must pursue any third party action against the negligent party within six months of accepting a compensation award or the right is assigned to the employer. Award, as used in this instance, means compensation order. The employer then has ninety days to commence a third party action. If the employer does not institute an action during this ninety day period the right reverts to the employee.

6. Distribution of Third Party Action Proceeds. The EC has first dollar recovery rights against the "net amount" (i.e. the gross amount less reasonable attorneys' fees and expenses reasonably incurred) recovered in a third party action. If the recovery is less than the compensation benefits due, the employee is entitled to be paid the difference by the EC. However, if the third party recovery is greater than the benefits due, the EC is not only entitled to credit the recovery against past payments/obligations but also against any future liability for which it may be responsible. The employee is entitled to retain all the proceeds remaining from the third party recovery after the past and future credits, noted previously, have been applied.

7. Medical Benefits. In addition to a credit for all compensation payments, the EC is entitled to a credit for all past and future medical payments made under section 7 of the Act. Thus, the injured employee is responsible for the payment of his/her medical expenses as long as proceeds remain from the third party action. The employee should be advised to submit these paid medical bills to the EC so that appropriate reductions to the remaining third party proceeds can be made.

8. Rights of the Special Fund. To insure that claimants will continue to receive SF benefits, the parties of interest must submit form LS-33 for the N/O review and the Director's signature.

In addition to the LS-33, a statement outlining the specifics of the distribution must be furnished to include:

Gross Recovery

Attorney Fees

Costs and Expenses

Employer/Carrier lien (as agreed)

20 Percent of Gross Recovery (claimant's share as allowed by the Special Fund)

Special Fund Lien(taken after claimant's share is determined)

Any remaining balance will be applied as a credit to the claimant's future compensation.

Section 33(g)(3) of the Act specifically provides the Special Fund with a "lien upon the proceeds of any settlement obtained from or judgment rendered against a third person" whenever any funds have been disbursed under section 44. However, the EC retains first dollar recovery rights which must be satisfied before the Special Fund will assert its lien. Negotiations on behalf of the Special Fund will be conducted by the Director, DLHWC. Therefore, any questions raised by the parties in interest regarding the position of the Special Fund in any third party case should be referred directly to the NO. Due to the complexity of such negotiations, each case will be individually reviewed by the Director before a determination is made.

Please refer to Waganer v. Alabama Dry Dock and Shipbuilding Co., 12 BRBS 582 (1980), (LHWCA CIRCULAR 80-14, August 21, 1980, a copy of which may be obtained from the National Office if needed), for guidance on how to calculate deficiency compensation in cases being paid under section 10(h) of the Act. The Director, DLHWC, must execute Form LS-33 in all Special Fund cases involving third party settlements.

9. Consent. Section 33(g)(1) of the Act requires the written approval of the employer and carrier for any settlement which is less than the amount to which the employee would be entitled to under the Act. If written approval is not received before the settlement, the employee's right to future compensation is terminated. Form LS-33 is used to obtain this written approval. Reference the Supreme Court's decision in Cowart v. Nicklos Drilling, 26 BRBS 49(CRT)(1992). This decision clearly outlines the obligations of the claimant.

10. Third Party Action Against a Vessel. Under section 5(b) of the Act, a claimant may file a third party action against a vessel. If the claimant's employer is also the vessel owner, the claimant can sue the employer for negligence and also collect compensation benefits from the employer. Jones and Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523 (1983). However, if the claimant is employed by the vessel to provide stevedoring services, no third party action is permitted if the injury is caused by the negligence of persons providing stevedoring services to the vessel. In addition, no third party action is permitted for employees hired to provide ship building, repairing or breaking services if the employer is the "owner, owner pro hac vice, agent, operator, or charterer of the vessel."

11. Regulatory Requirements. Section 702.281 of the regulations requires that the employer and the DD are to be promptly notified whenever any action is taken against a third party for the injuries sustained by the employee. Any settlement and its conditions are to be reported regardless of the amount. In addition, as described above, written approval must be obtained from the employer whenever the third party settlement amount is less than the compensation due. Failure to notify the employer and obtain written approval when required relieves the EC of the liability for future compensation. It is imperative that the claimant and his/her representative be aware of their obligations under sections 33(g)(1) and (2) of the Act.