Workers’ Compensation Settlements: The Next Generation
When the most recent changes to Ch. 440 took effect on October 1, 2001, claimants and employer/carriers in the workers’ compensation system immediately had greater freedom to settle claims without the influence of a judge of compensation claims. Since that time workers’ compensation claimants represented by counsel have had the ability to waive rights to workers’ compensation benefits in exchange for a lump sum payment without the approval of a judge of compensation claims (JCC).1 F urthermore, the parties have not needed to submit any documentation or support for the settlement agreement.2 T he settlement agreement now only requires approval by the JCC for claims of attorneys’ fees and allocation of child support arrears, if any, and becomes binding at the time of execution, as would a general written contract.3
Since the JCC is no longer needed for approval of the settlement agreement, parties are not free to change their minds about the settlement after the paperwork has been signed or a formal agreement entered into. Further, employers are no longer given the statutory right to express their dissatisfaction with a settlement agreement within the workers’ compensation court system. Likewise, at this time, when a settlement agreement is effectuated, any attempt to overturn that agreement would fall outside a workers’ compensation context and would be interpreted and governed by contract law.
Although the new statutory provisions make settlement easier to enter into, they increase the likelihood of litigation between employers and carriers and attorney and client because the protection of JCC approval has now been removed. Practitioners settling cases within the workers’ compensation system need to now be knowledgeable about the bases on which a settlement agreement can be overturned under general civil law in order to protect themselves from attack via malpractice claims and to protect their clients from further litigation arising because of the settlement agreement. This applies to attorneys for both the employer/carrier and the claimant.
Under general civil law, courts will not set aside settlement agreements absent extraordinary circumstances. Although determining whether to set aside a settlement agreement rests on the sound discretion of the court, settlement agreements are highly favored under the law and will not generally be disturbed.4 T he court is reluctant to overturn settlement agreements and have held that they are especially unsuited for a liberal application of rules allowing rescission.5 T he language in Sponga v. Warro, 698 So. 2d 621 (Fla. 5th DCA 1997),
is indicative of the court’s hesitance in setting aside settlement agreements, especially those arrived at through the formal mediation process:
The decision to engage in mediation and to settle at mediation means that remedies and options otherwise available through the judicial system are foregone. The finality of [the settlement agreement] once the parties have set down their agreement in writing is critical. A party who makes the decision to engage in mediation and to settle is entitled to rely on the finality of the agreement.6
For settlement agreements effectuated under F.S. §440.20(11)(c), the court will be even more hesitant to overturn the agreement because both parties were represented by counsel at the time of settlement. When a settlement agreement is entered into by sophisticated and knowledgeable persons in an arm’s length transaction in which both parties received benefits, the agreement will remain enforceable despite the fact that one party emerges in a substantially better position.7
Despite the preference the courts have to keep settlement agreements intact; however, there are circumstances under which they can be overturned. A settlement will be deemed invalid if a court finds unjust enrichment, mutual mistake, fraud, or duress. Should the elements of these be proven and a settlement agreement overturned, the original attorneys involved have then exposed themselves to additional liability to the parties they had represented for failure to provide adequate representation with regard to the workers’ compensation settlement along with the liability their clients may face because of the invalid settlement. This article will address the different ways in which a workers’ compensation settlement can be overturned in order to provide some guidance to practitioners of the additional factors that must now be considered when settling a workers’ compensation claim under the “new” law.
A settlement can be overturned when one party received a windfall recovery, which in good conscience he or she should not be allowed to retain.8 I n Sharff, an accountant agreed to refund overtaxed funds of former clients that were lost due to the accountant’s negligence. The clients later recovered the full amount of their loss from the Internal Revenue Service. The court set aside the settlement due to the double recovery of the clients, under the theory of unjust enrichment. As in Sharff, any settlement attacked on unjust enrichment grounds would be very fact specific and would have to include a situation of double recovery or an unconscionable windfall by one of the parties. These types of situations are rare and settlements will generally be upheld despite the fact that one party is now in a substantially better position.9
This line of cases and an argument of unjust enrichment would be most applicable in two scenarios. The first of these are the instances in which a claimant receives money from a third party tortfeasor or another entity for the injuries suffered as a result of the workers’ compensation accident after a workers’ compensation settlement has taken place. If the employer/carrier is unaware of a potential recovery or has not been informed of the claimant’s intention to pursue recovery from another entity, then it may have an argument at the time money is exchanged that the claimant has been unjustly enriched. Only completely revealing all potential sources of recovery, obtaining a waiver of any future arguments of unjust enrichment will fully protect the claimant against such an argument.
The second scenario under which this line of cases might be applicable is a situation in which the parties fail to obtain Medicare’s approval of a medical settlement for claimants who are currently receiving or will receive Medicare benefits. If this occurs and Medicare is later required to pay for expenses associated with the workers’ compensation accident, then it may sue the employer/carrier for double the costs it has incurred.10 W hen an employer/carrier was unaware of the claimant’s entitlement to Medicare benefits, and when it has already compensated the claimant for his or her medical expenses through a settlement, a claim of unjust enrichment could reasonably be made against the claimant. This scenario again demonstrates the prudence on a claimant’s part of revealing potential or already-existent entitlement to other benefits for his or her workers’ compensation injuries, including Medicare benefits. Such a revelation will give an employer/carrier reasonable notice of its obligation to protect itself against suit by Medicare in the future and will most likely preclude its ability to pursue any claim against the claimant for future payments it might make because of its failure to adequately protect itself.
A second basis for possibly setting aside a workers’ compensation settlement is that of mistake. Equity may grant relief from a settlement agreement that is based on material facts assumed by both parties, where such facts do not exist.11 G enerally, the mistake must have been mutual and must have been more than a mere error in judgment as to the values involved.12 G enerally, a unilateral mistake on the part of either party will not be sufficient to overturn the settlement. Although mistake may be used to set aside an agreement on an injury claim when both parties are unaware that the claimant had sustained any injury or where the claimant was unaware of a particular injury, release of a claim for personal injuries may not be set aside based on mistake of fact when the claimant’s known injury proves to be more severe than was anticipated by the parties at the time of the execution of the release.13 T his is based upon the view that a mistake as to the future consequences of a known injury does not involve a present mistake of fact, but instead involves an erroneous opinion or improvident guess as to the future consequences of presently known injuries.14
Prior to October 1, 2001, parties went to great length to include a significant level of detail in the settlement documents, such that the judge of compensation claims reviewing the settlement paperwork was fully informed of all facets of the claimant’s medical condition.15 A ttorneys included long, detailed medical summaries covering the claimant’s medical treatment for years prior to the accident along with detailed summaries of every visit the claimant made to any medical facility after the accident. The prior joint petition stipulations also included the required information detailing dates of maximum medical improvement from each specialty treating the claimant, and future care information from these same physicians.16
Persons preparing settlement documents after October 1, 2001, should avoid this sort of detail to reduce the likelihood that successful claim of mistake can be made. Many times the information previously included could cover years of treatment, and the more detailed such a recitation purported to be, the more likely that mistakes or omissions would occur. These mistakes or omissions could legitimately be pointed to as “mutual mistakes” upon which a settlement was based. As time passes after a settlement is finalized, making memories less clear and believable, the written document effectuating a settlement will have increasing weight in any future litigation dealing with such settlement. For these reasons, the parties need to consider carefully whether there is any benefit to including detailed information not now required by any statute in settlement documents, or whether the risk of including such information now greatly outweighs its benefit.
Early settlement of a case may also be problematic under the line of cases dealing with claims of mutual mistake. Although dates of maximum medical improvement are no longer required as part of a workers’ compensation settlement, a claimant might legitimately argue some time after a settlement is finalized that there were conditions that had arisen since the settlement which neither party was aware of at the time. Arguing a mutual mistake of the conditions caused by a workers’ compensation accident is not the same as arguing that the existent conditions were actually more severe than anticipated, which argument would be precluded under existing case law. Instead, the viable arguments may be made by a claimant who, for example, has now been diagnosed with a new related cervical condition or who has recently begun treatment for psychiatric conditions related to the accident, which had been undiagnosed at the time of the settlement. These types of claimants may argue that because of the mutual mistake inherent in any settlement negotiated before the diagnosis of these conditions, that the settlement must be overturned.
Although this problem is not completely avoidable, the frequency of its occurrence can be greatly reduced by not rushing settlements, allowing adequate time prior to settlement of a case for a claimant’s injuries to fully develop and/or surface, such that all parties can be arguably said to have known what they were giving up in the settlement. This also highlights the general rule that the settlement paperwork should include, with specificity, all of the rights that the claimant is giving up as a result of his accident.17
Settlements may be overturned if allegations of fraud can be proven. It is the burden of the party seeking to set aside the agreement to promptly announce its purpose on discovery of the true facts.18 I f a settlement agreement is found to be invalid on the basis of fraud, it may not be resurrected because the effects of the earlier misrepresentations can be ameliorated by other means.19
The burden of overturning a settlement due to fraud is high. In a proceeding to set aside the settlement, the evidence of fraud, coercion, or deceit must be clear and convincing.20 I t has long been the law that relief will generally be granted from a settlement agreement that has been procured through fraud, deceit, or trickery if it is clear that the complaining party would not have entered into the agreement if it had not been for the influence of such fraud or deceit.21 M isrepresentation amounting to fraud that will invalidate a settlement agreement must be made by one party to the other in reference to a matter affecting the contract. The person to whom it is made must not only believe the false representation to be true, but must be so situated with respect to it that he has the right to rely on the truth of the representation as made.22 T he moving party must show the court by clear and convincing evidence that the other party intentionally misrepresented the facts for the purpose of inducing settlement.
In an effort to avoid allegations of fraud after a settlement has been effectuated, the attorneys should again carefully consider the amount of detail about a claimant’s treatment history that is properly includable within the settlement paperwork. One reason for including such information when trying to guard against a future claim of fraud is that no party can claim he or she was misled as to the extent or nature of the work injury. For example, if the claimant’s treating physicians are recommending surgery or another specialty, such would be included into the medical summary portion of the settlement agreement. Further, the claimant’s exact impairment and future care estimate from each specialty could be included. This would put the claimant on notice of such information and prohibit him or her from later asserting that the E/C held back such information in order to defraud the claimant into settlement.
It appears, however, that prudent attorneys should again be more cognizant of the potential disadvantage in including such a summary or other medical information. Should certain medical information not be included in what purports to be a complete recitation of the claimant’s medical condition, either by accident or intentionally, this may allow either party to later claim that he or she did not have such information and that the nondisclosure of such constituted an intentional misrepresentation of the claimant’s condition or history at that time for purposes of effectuating the settlement.23 F or protection of the settlement agreement against claims of fraud, it appears that the more prudent course would be to leave the burden to reveal all-important information associated with the settlement with the attorneys for each side, and to omit such information from the settlement paperwork itself.24
It is a staple of common law that equity may order the cancellation of a settlement agreement that was procured by duress.25 D uress includes whatever destroys a person’s free agency and constrains that person to do something against his or her will. This control may be exercised by physical force, threats, importunity, or any other species of mental or physical coercion. The age, sex, state of health, and knowledge of the complainant may be taken into consideration in determining whether the complaining party was actually acting against his or her free will in entering into the settlement agreement.26
When considering the issue of duress in workers’ compensation settlements, it is extremely difficult to think of a circumstance in which an employer/carrier could successfully make this argument. In protecting against claims brought by claimants against prior settlement agreements, one must consider the timing of the settlement negotiations and final agreement. Although the new amendments essentially allow a claimant to settle a workers’ compensation claim immediately after the accident has occurred, to avoid viable arguments of duress an employer/carrier should allow the claimant a reasonable amount of time to consider the settlement agreement before he or she signs it, should allow a reasonable amount of time to pass before entering into a settlement at all, and should include language in either the settlement release or an affidavit which evidences the claimant’s reading of the settlement agreement, his or her knowledge of its content, and the claimant’s ability to consult with counsel prior to entering into the agreement.
Duress arguments create a possible pitfall to taking a “fill in the blank” type settlement agreement to mediation, adding the appropriate information into the settlement agreement27 a nd having all parties sign the agreement at that time. While the new amendments do not prohibit such practice and doing so would further expedite the settlement, an argument of undue influence could be made because the claimant did not have ample time to consider the terms of the settlement.
Although the basic terms of the settlement can be considered an oral contract by the parties who would make the settlement binding, many settlement agreements may also contain additional provisions such as confidentiality commitments, voluntary resignations, and a general release agreement.28 A ccordingly, the settlement agreement will not likely be a simple one-page document that merely indicates that settlement has been reached along with the amount of such settlement. not allowing the claimant time to consider these additional provisions in the settlement agreement, the claimant may be able to successfully assert undue influence against the employer/carrier and have the settlement agreement set aside.29
Duress arguments may also be made when an employer/carrier settles with a claimant too quickly, taking advantage of a state of mind affected by a recent accident or pain from a recent injury. Similarly, claimants may attempt to argue that, because of their age, sex, or position in relation to the employer/carrier that they felt coerced into settling. These arguments have a slim chance of success, however, as all claimants utilizing the statutory sections referenced in this article will be represented by counsel.
To guard against even the possibility of arguments of duress, the claimant, as part of the settlement, language should be added to the settlement release or a separate affidavit should be drafted that evidences the claimant’s ability to review the settlement release at his or her leisure. It should also reflect the claimant’s access to counsel, his or her thorough review of the release and its terms, and a full understanding of the rights being released. To be completely thorough it should also include a clear statement that the claimant is entering into the settlement of his or her own free will, and has not been coerced by any party to enter into the agreement.
Accordingly, in order to avoid the possibility of undue influence, the employer/carrier should allow the claimant at least several days to consider the terms of the settlement and to obtain proper advice regarding such from his or her attorney. It should also consider carefully the claimant’s circumstances at the time of settlement in regard to that claimant’s ability to make rational decisions. Finally, documentation evidencing a claimant’s knowledge of the rights given up and freedom to enter into the settlement should also be included.
With the new amendments to §440.20(11) now in effect, workers’ compensation settlements are supposed to be easier and more streamlined than before by transferring the settlement process into the civil arena and outside of the jurisdiction of the judge of compensation claims.30 A t the same time, the new amendments no longer offer the protection of having the settlement approved by the judge of compensation claims. Further, there are now more factors that must be considered when drafting the settlement agreement, and the failure to properly consider these factors make setting aside a workers’ compensation settlement more likely. Such a failure also opens the door to possible malpractice claims against either party by their client. However, giving proper deference to the factors discussed above when drafting a workers’ compensation settlement agreement should allow practitioners for both the employer/carrier and the claimant to avoid, as much as possible, such liability by minimizing the chances of the settlement later being overturned.
1 See Fla. Stat. §440.12(11)(c)(2001).
2 See id.
3 See id.
4 See Robbie v. City of Miami , 469 So. 2d 1384, 1385 (Fla. 1985); see also Wagner v. Mack , 422 So. 2d 1045 (Fla. 4th D.C.A. 1982).
5 See Sponga v. Warro , 698 So. 2d 621 (Fla. 5th D.C.A. 1997).
6 See id.
7 See Amerifirst Fed. Sav. & Loan Assn’n v. Cohen , 454 So. 2d 626, 627 (Fla. 3d D.C.A. 1984).
8 See Sharff, Wittmer & Kurtz P.A. v. Messana , 581 So. 2d 906 (Fla. 3d D.C.A. 1991).
9 See Amerifirst , 454 So. 2d 626.
10 See 42 U.S.C. §1395y(3).
11 See Soucy v. Casper , 658 So. 2d 1015 (Fla. 4th D.C.A. 1995); see also Ghahramani v. Guzman , 535 So. 2d 435 (Fla. 4th D.C.A. 2000).
12 See Hendrick v. Redfearn , 88 So. 2d 620 (Fla. 1956).
13 See Sponga , 698 So. 2d 621.
14 See id.
15 The old standard for setting aside a joint petition stipulation was whether the JCC had been provided with information sufficient to make an informed decision as to the reasonableness of the workers’ compensation settlement. See Cordell v. Pitman Building Supply Co. , 470 So.2d 865 (Fla. 1st D.C.A. 1985). Accordingly, many JCCs required a detailed medical summary in the joint petition stipulation so that he or she would be fully aware of the claimant’s medical condition when considering approval of the settlement, see Cordell , some attorneys included detailed medical summaries even when not required by the JCC in order to avoid a possible set-aside based upon lack of essential information regarding the claimant’s medical condition.
16 Prior to the recent amendments, information regarding maximum medical improvement and future care estimates were required for certain settlements. See Fla. Stat. §440.20(11)(1999). However, the recent amendments have done away with this requirement except when the claimant is unrepresented. See Fla. Stat. §440.20(11)(2000).
17 See Hertz Rent-a-Car and Hertz Claims Management v. Sosa , 670 So. 2d 73 (Fla. 1st D.C.A. 1996).
18 See Williams v. International Assoc. of Machinists & Aerospace Workers , 484 F. Supp. 917 (Fla. S.D. 1978).
19 See McCabe v. Siegel , 642 So. 2d 570 (Fla. 4th D.C.A. 1994).
20 See Wagner , 422 So.2d 1045.
21 See Columbus Hotel Corp. v. Hotel Management Co. , 156 So. 893(Fla. 1934).
22 See id.
23 This argument as it pertains to medical information should only apply when a claimant is unrepresented. In such case, the employer/claimant bears the same responsibility of disclosure in the settlement documents as under the old law.
24 This responsibility should be reflected in the settlement release. This will, of course, increase the potential that malpractice claims will arise between each attorney and his or her client.
25 See Sheldon v. Wilfore , 186 So. 508 (Fla. 1939).
26 See Motor Credit Corp. v. Woolverton, 99 So. 2d 286 (Fla. 1957).
27 Under the new law, the only information that would need to be added is the settlement and attorneys’ fee amounts.
28 Prior to the recent amendments, incorporating general release language into the joint petition stipulation was prohibited. See Rule 4.143, F.W.C.R.P. This should still apply where claimants are unrepresented. However, where the claimant is represented, the settlement agreement takes the form of a civil law contract, so there should be no restrictions with regard to incorporating a general release into the main settlement agreement. Some employer/carriers may nonetheless choose to draft a separate general release agreement since such could involve parties different from those involved for the workers’ compensation settlement ( i.e. , where the employer’s general liability carrier, the party that would benefit along with the employer from the general release agreement, is a different entity than the employer’s workers’ compensation carrier.).
29 Further, the claimant may try to pursue a malpractice claim against his or her attorney on grounds that the attorney should have taken additional time to fully advise the claimant of the impact of these additional provisions before signing the settlement agreement.
30 With the exception of approval of attorneys’ fees and allocation of child support arrearage.
Jana E. McConnaughhay is a shareholder in the firm of McConnaughhay, Duffy, Coonrod, Pope & Weaver, P.A. Her practice is focused primarily in the area of workers’ compensation defense. Ms. McConnaughhay obtained her B.A., with honors, from Furman University and her J.D. from the Vanderbilt University School of Law.
Dion J. Moniz is an associate in the Panama City office of McConnaughhay, Duffy, Coonrod, Pope & Weaver, P.A., and concentrates in the area of workers’ compensation defense. He graduated from Florida State University College of Law, cum laude , in 2000. He has also been admitted to the Alabama State Bar.
This column is submitted on behalf of the Workers’ Compensation Section, Martin L. Leibowitz, chair, and Pamela L. Foels, editor.