The Missouri Supreme Court refused to approve the lump sum settlement as either a settlement of a claim or as a Commutation of Benefits in Andrew Dickemann v. Costco Wholesale Corporation.
The claimant received a Final Award granting permanent total disability benefits to be paid out over his lifetime.
Two years after the Final Award, the parties agreed for the employer to make a lump sum payment to the claimant to fully satisfy the PTD Award.
This Commutation of Benefits had to be approved by the Labor & Industrial Relations Commission (“Commission”).
The Commission denied the request to commute benefits to a lump sum.
The Commission first denied the agreement on the grounds that it had no authority to approve the agreement as a “settlement” under Section 287.390.
The Commission also ruled that they could not approve the settlement as an Application for a “Commutation” because the employer’s proposed lump sum payment was not equal to the commutable value of the future weekly payments from the running Award.
The parties had agreed to a lump sum Commutation of Benefits totaling $400,000.00. The parties agreed that it would fully and finally satisfy the running Award previously entered by the Administrative Law Judge. In the agreement, the claimant acknowledged he voluntarily accepted the terms of the agreement, understood his rights and benefits and there had been no undue influence or fraud in procuring this lump sum payment.
The Supreme Court affirmed the Decision of the Commission refusing to approve the lump sum settlement as either a settlement of a claim or as a Commutation of Benefits.
The Supreme Court first declined to approve this lump sum payment as a settlement of a claim because as of the date of the issuance of the Award the claim had been resolved. They found that as of the date of the Award the claimant no longer had a claim, but rather, possessed a right to such compensation.
The Supreme Court also refused to approve the lump sum payment as a Commutation of Benefits under Section 287.530.
The court first noted that a commutation is a departure from the normal method of payment and is to be allowed only when it clearly appears that some unusual circumstances warrant such a departure.
The court also stated that when determining whether a commutation is in the best interests of the employee, the Commission is required to “constantly bear in mind…that compensation payments are in lieu of wages and are to be received by the injured employee or his dependents in the same manner in which wages are ordinarily paid.”
The Supreme Court pointed out that the plain language of Section 287.530 on Commutation of Benefits does not support the conclusion that it applies only to contested Applications for a Commutation and that all uncontested Applications for a Commutation are free to proceed as voluntary agreements.
The Supreme Court indicated that the lump sum payment of $400,000.00 was not a Commutation of Benefits because it failed the financial equivalency requirement set forth in the statute. The court found that the commutable value of future installments, taking into account the claimant’s life expectancy, was at least $590,000.00.
Interestingly, the footnote in the Supreme Court Decision relies on the Order of the Commission utilizing a “4% discount rate” to determine the present value of permanent total disability Award at $590,000.00. The footnote also states that the Supreme Court is bound by that finding.
It appears that the Supreme Court is stating that this was a finding of fact which they are bound by. However, it should be noted that the Missouri Workers’ Compensation Act does not provide a discount rate for determining present value of future benefits.
It will be much more difficult to reach lump sum settlements after an Award has been issued or a settlement reached which provide for benefits to be paid out over a claimant or dependents lifetime.
However, there still may be methods to reach the goal of a lump sum settlement. This may include the utilization of a rated age and reducing the workers' compensation award to a judgement.
The Commission may also be willing to commute benefits at a figure less than the financial equivalency of the future benefits if the parties can demonstrate that there is some “unusual circumstance” that would warrant a departure from the normal method of payment. You would also have to prove that the commutation is in the best interests of the employee.
Although this case dealt only with the Commutation of Permanent Total Disability Benefits on a running Award, it would likely apply to death benefits as well. The analysis in the case would also likely apply to commuting future medical benefits to a lump sum amount.
However, if a Medicare Set Aside is required in a case outlining the future medical benefits to be paid and assuming the Center for Medicare & Medicaid Services has agreed to the MSA amount the court may well approve same. However, there may be non-Medicare covered benefits that would need to be addressed in the lump sum pay out.
If you have any questions or concerns regarding this case, please do not hesitate to contact us to discuss the particular details of the claim.