Rather than receiving weekly or monthly checks from workers’ compensation, can I settle my case with an agreement for a single lump sum?

Workers’ compensation laws can vary from state to state. Some states allow certain leniencies on how long an injured worker can remain on workers’ compensation, while other states are extremely strict.

Similarly, state rules vary on workers’ compensation payment rules. Some states, including Michigan and Massachusetts, allow injured workers to draw a partial amount or the entire collective sum of their compensation in a single lump sum through an advance payment of future benefits. However, Texas never endorsed the practice, and a state Supreme Court decision in 2016 ruled lump-sum settlements illegal.

Pros and Cons of Lump Settlements

The Workers’ Compensation Act of 1993 sought to eliminate work injury settlements altogether. For the past 25 years, injured workers could still obtain compensation, but not in the form of a settlement. The court decision which banned lump-sum workers’ compensation payouts was made in the case of Texas Division of Workers’ Compensation v. Jones. This case invalidated lump-sum settlements in response to the notion that although a lump settlement can appropriately cover past benefits, there isn’t a practical way to predict the need for future benefits. This decision highlights the pros and cons of the national debate over workers’ compensation settlements.

Why Other States Permit Lump-Sum Settlements

Of course, other states have their own reasons for allowing an early final settlement for an outstanding workers’ compensation claim. In many cases, all parties to the claim prefer such settlements over open-ended monthly payments:

  • Insurance company pros. When insurance companies are allowed to settle on a single lump sum for workers’ compensation, they’ll more often than not wind up paying less to the injured worker for long-term care. Since there is no way to tell positively how long an injury may take to completely heal, the insurance company takes a chance that the lump sum settlement will pay for previous care and some future care. This way, they’re off the hook for any extended problem or complications after the settlement is paid.
  • Injured worker pros. A lump sum seems like a good idea for injured workers in the short term. After all, a large settlement can be used to pay off medical bills before they start to accrue interest, and also to pay rent and cover several months worth of lost wages. A single large settlement also greatly decreases stress over dealing with a trial, workers’ compensation adjusters, and waiting for monthly checks.

Why Texas Objects to Lump-Sum Settlements

  • Insurance company cons. Settling on a large lump sum is a gamble for insurance companies. They don’t want to get caught paying too much for a minor injury. However, low-balling injured clients is somewhat of an art form for many adjusters and they tend to be good at it. Without the option of settling outright, insurance companies have limited loopholes to work with in order to decrease a settlement.
  • Injured worker cons. The injured victims of workplace accidents have the most to lose with lump-sum settlements. It’s too easy to grab an offer of cash today rather than wait for future periodic payments. The risk of accepting a single payout is that there’s no guarantee the settlement will cover all future injury-related medical and income needs. If the injury extends over a long term or is permanently disabling, the injured worker may literally have no leg left to stand on since he’s already accepted his maximum compensation.

Even though Texas does not generally allow lump sum payments for worker’s compensation, exceptions do exist. As always, consult an experienced attorney to find out whether your situation qualifies for one of the few exceptions or for alternative options. An experienced lawyer like attorney Steve Lee can use the skills he’s polished over the years to help you get the most out of your claim. For more information on scheduling your FREE consultation, contact our office today.

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