When May An Employer Or Carrier Accelerate Future Permanency Award Payments In A Lump Sum?


Most workers’ compensation awards in New Jersey are settled with a percentage of disability paid over time in weekly installments.  These are called Orders Approving Settlements under N.J.S.A. 34:15-22.  A smaller portion of settlements are paid in one lump sum under N.J.S.A. 34:15-20.  This second category only applies when there is an issue of jurisdiction, liability, causation or dependency.  Section 20 settlements are not available in compensable cases where there is objective evidence of permanent disability.

But are there times where a percentage award, for example, of 40% permanent partial disability (240 weeks of benefits) can be paid out in one lump sum instead of being paid out over four and a half years?

This is a question that this practitioner has been asked many times.  Let’s consider two examples:

1) An employee receives an award for an operated two-level fusion for 40% or $115,440 at 2018 rates. The employee gets a few weekly installments paid at a rate of $481 per week and then contacts the adjuster and asks, “Would you please forward the remaining checks to me in one lump sum, as I need to buy a house?”

Frankly, the carrier might want to close the case out and get the payments off the books, as well as avoid the necessity of making payments for the next four and a half years.  But is this permitted in New Jersey?  The answer depends on an understanding of the term “commutation,” which refers to advancing future payments under an award.

N.J.S.A. 34:15-25 provides clear guidance on when a commutation can be done.  First, only a Judge of Compensation can approve a commutation.  Second, there must be an application by a party for a commutation.  Third, the employer is entitled to a discount of 5% if the judge approves the commutation.  Fourth, the Judge must find that this is in the best interest of the employer.  The statute states that a commutation is only allowed “when it clearly appears that an unusual circumstance warrants a departure from the normal manner of payment.”

Now let’s consider a fairly common situation of a reopener where the payments have not been fully made on the original order at the time that the case is reopened.

2) An employee is halfway through payments on a 40% award with 120 weeks remaining and then files a reopener for additional treatment as well as additional permanent partial disability.  The adjuster provides some initial treatment and then the parties and their counsel propose to accelerate the remaining permanency payments in one lump sum. Thereafter, they will execute a small Section 20 settlement on the reopener.

This proposal sounds appealing to both sides but it is fraught with danger for the employer/carrier.  On the surface, the carrier may like the idea of concluding the original award by making a lump sum payment of 120 weeks of benefits followed by a Section 20 on the reopener, putting the whole case to bed at once.  The employee may like it because he or she can spend the money as he or she sees fit on a large purchase, take a special vacation, or invest it and earn interest.  Not so fast, however, because this too is a commutation since payments that were intended to be made over many future weeks are now being paid in a lump sum.  In order to do this, there must be an application to the Judge for a commutation.  If the Judge rejects the commutation, then the remaining payments under the original award must be paid weekly.  Very few commutation applications are granted.

Why is this fraught with danger for the adjuster, carrier, employer and defense counsel?  The answer is that people may do foolish things with large sums of money.  Suppose an adjuster were to issue a lump sum check for 100 weeks of future payments at $400 per week for a total of $40,000 and then close the file?  Suppose further that this employee gets the lump sum check, goes to a casino and blows all the money in one evening.  Next day the employee contacts his or her lawyer, who discovers that there was an impermissible commutation.  The attorney immediately files a motion to require the employer/carrier to repay the entire award.  Can the employer be required to pay twice?  That depends on the powers of judges to assess penalties.

N.J.S.A. 34:15-25 does not contain references to penalties, so we have to look elsewhere for the powers of judges to penalize a party which violates the statute.  In 2008 the Legislature passed several provisions in N.J.S.A. 34:15-28.2 to 28.4 designed to enhance penalty powers of judges.  These sections provide that in addition to certain fines, the Judge can take “other action deemed appropriate by the Judge of Compensation.”  Since workers’ compensation is social legislation, it would seem that a judge likely has the power to require the employer or carrier to repay the entire $40,000 where neither party filed an application for permission to make a commutation.  At a minimum the judge could hold a hearing for contempt with referral to the Superior Court for contempt proceedings.

At this point, you may wonder why New Jersey has such strict rules on accelerating future payments? There are really two reasons.  The Legislature intended workers’ compensation award payments to be a partial replacement for lost weekly wages.  The statute states that permanency payments “are to be received by the injured employee or his dependents in the same manner in which wages are ordinarily paid.”  That means weekly or biweekly.  Permanency payments are not like damages in a civil action for pain and suffering. 

Moreover, the Legislature has a strong conviction that weekly future payments are in the best interest of almost all employees in compensable cases because payments over time avoid the potential problem noted above of someone literally losing all the money at once.

By John H. Geaney

Courtesy of New Jersey Workers' Comp Blog

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