Jim O'Malley's August 6, 2019 Memo Concerning Attorney Fees for Medical Expenses

Department Policy on Awarding Attorney Fees for Medical Expense Settled by Compromise Agreement

Date: August 6, 2019
To: Steve Peters, Administrator, Worker's Compensation Division
From: James O'Malley, Director, Bureau of Legal Services, Worker's Compensation Division

The longstanding Department policy about awarding attorney fees for medical expense was summarized in a memo dated August 2, 1988 by Ms. Helen Schott, Director of the Bureau of Legal Services for the Worker's Compensation Division. The information in Ms. Schott's memo is correct and accurate but did not discuss the Department's policy on awarding attorney fees for medical expense that is settled by compromise agreements.

The scope of this memo is limited to the question about payment of attorney fees based on medical expense covered by compromise agreements. The issue concerning payment of attorney fees on medical expense in general is covered in Ms. Schott's memo and any change in the Department's longstanding policy is a major policy issue that must be addressed by the Worker's Compensation Advisory Council.

This memo will summarize the longstanding Department policy on how attorney fees are to be awarded for medical expense that is settled by compromise agreements.

Some situations occur where compromise agreements are settlements for compensation and medical expense due for an injury without specific reference or itemization of the medical bills to be paid under the terms of the agreement. When compromise agreements are drafted in this manner attorney fees of up to 20% are payable on the entire amount of the settlement proceeds. See Example No. 1.

Compromise agreements that specifically designate or itemize the amount payable for compensation or death benefits in addition to the medical bills that will be paid under the terms of the agreement present a different situation. No attorney fees are payable for medical expense where the medical bills are specifically referenced or itemized in the terms of the compromise agreement. In these situations attorney fees of up to 20% are payable on the amount awarded for compensation only with no attorney fees due on the medical expense. See Example No. 2.

A few cases involve compromise agreements that are settlements of disputed medical expense only with no other claims or issues included. In these cases where only medical expense is settled attorney fees of up to 20% are payable. See Example No. 3.

These principles apply to compromise settlements where employees are reimbursed for out of pocket medical expense payments and settlements where a WKC-3 is in the file. In situations where employees are reimbursed a specific dollar amount, by the terms of a compromise agreement for reimbursement of out of pocket medical expense, no attorney fees are due on the amount paid to an employee for the reimbursement. Attorney fees of up to 20% are warranted on the entire amount of the settlement proceeds where there is a WKC-3 in the file and no specific medical bills are referenced or itemized in the terms of a compromise agreement.

Example No. 1

The parties agreed to a limited compromise agreement to settle an employee's claim for occupational hearing loss against a former employer. There is a legitimate causation defense. The employer's worker's compensation insurance carrier agreed to pay a total of $5,000.00 as consideration for settlement of the claim and the employee agreed to accept this amount. The terms of a written compromise agreement provide the settlement is for compensation for permanent partial disability and a hearing aid with no reference of the hearing aid provider and the amount payable for the hearing aid. From the compromise proceeds the employee should be paid $4,000.00 and the employee's attorney should be paid $1,000.00 for attorney fees (20% of $5,000.00).

Example No. 2

The parties agreed to a compromise agreement to settle an employee's claim against an employer for a shoulder injury. There is a legitimate causation defense for this case, and this is a full and final settlement. The employer's worker's compensation insurance carrier agreed to pay a total of $10,000.00 as consideration for settlement of the claim and the employee agreed to accept this amount. The terms of a written compromise agreement provide the settlement is for temporary total disability, permanent partial disability, $1,000.00 for a medical bill to Dr. A and $1,000.00 for a medical bill to XYZ Medical Clinic. From the compromise proceeds the employee should be paid $6,400.00, and the employee's attorney should be paid $1,600.00 for attorney fees (20% of $8,000.00) with payment of $1,000.00 to the physician and $1,000.00 to the medical clinic. No attorney fees are due on the $2,000.00 paid for medical expense.

Example No. 3

The parties agreed to a limited compromise agreement to settle a bill to a hospital for treatment provided to an injured employee. There is a legitimate causation defense for this case. The employer's worker's compensation insurance carrier agreed to pay $3,000.00 as consideration for the settlement and the employee agreed to this amount after discussions with the hospital. From the compromise proceeds the hospital should be paid $2,400.00 and the employee's attorney should be paid $600.00 for attorney fees.