Section 33(g)’s “Trap for the Unwary”

A surefire way to forfeit future benefits is to fail to follow Section 33(g).  In our practice, we come across Section 33(g) cases now and again, and it is worthwhile reviewing Section 33(g) here.  Section 33(g) of the Longshore and Harbor Workers’ Compensation Act, as amended in 1984, states:

(g)(1) If the person entitled to compensation (or the person’s representative) enters into a settlement with a third person…for an amount less than the compensation to which the person (or the person’s representative) would be entitled under this Act, the employer shall be liable for compensation as determined under subsection (f) only if written approval of the settlement is obtained from the employer and the employer’s carrier, before the settlement is executed, and by the person entitled to compensation (or the person’s representative).  The approval shall be made on a form provided by the Secretary and shall be filed in the office of the deputy commissioner within thirty days after the settlement is entered into.

(2) If no written approval of the settlement is obtained and filed as required by paragraph (1), or if the employee fails to notify the employer of any settlement obtained from or judgment rendered against a third person, all rights to compensation and medical benefits under this Act shall be terminated, regardless of whether the employer or the employer’s insurer has made payments or acknowledged entitlement to benefits under this Act.

The Supreme Court of the United States previously stated that Congress, when enacting the statute quoted above, spoke with great clarity as to its intention.  Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 484, 112 S.Ct. 2589, 120 L.Ed.2d 379 (1992) (“Often we have urged the Congress to speak with greater clarity, and in this statute it has done so.”).  In the Cowart decision, Cowart entered into a settlement for his third party claim, but he did not secure a “formal, prior, written approval of the…settlement.”  Id. at 472.  The Court found that Cowart had forfeited his right to future indemnity and medical benefits, and further found that “the language of §33(g) is plain.”  Cowart, 505 U.S. at 478.  Among other things, §33(g) “protects the employer against his employee’s accepting too little for his cause of action against a third party.”  Id.  While this “forfeiture penalty creates a trap for the unwary,” only “Congress has the authority to change the statute, not the courts.”  Id. at 483-84.  Congress has not amended §33(g) in the twenty years since Cowart was decided.

The Cowart decision reached the Supreme Court upon grant of certiorari following the Fifth Circuit’s decision in Nicklos Drilling Co. v. Cowart, 927 F.2d 828 (5th Cir. 1991).  In that decision, which the Supreme Court affirmed, the Fifth Circuit questioned “whether section 33 permits any exception to its requirement that all settlements with third persons that leave the employer liable for further compensation benefits have the prior written approval of the employer and the employer’s insurance carrier.”  Id. at 830.  The Fifth Circuit found that “the language of section 33 provides no exception to its approval requirement.”  Id. at 832.  Further, the Fifth Circuit found that “Congress intended to require prior written approval in the limited circumstances where a claimant settles for an amount smaller than his LHWCA compensation entitlement.”  Id.  In conclusion, the Fifth Circuit stated that “in light of the plain language of section 33… Congress has spoken unambiguously and so as to leave no room for embroidery.”  Id.

The requirement for a prior, formal, written approval of a settlement has been oft-repeated.  See Kelly v. Red Fox Co. of New Iberia, Inc., 123 Fed.Appx. 595, 596-98 (5th Cir. 2005) (unpublished) (“Our court has consistently found that failure to obtain written approval of a settlement with a third party places an absolute bar on the receipt of further compensation from an employer or the employer’s carrier under the LHWCA.”); see also Trosclair v. Chevron U.S.A., Inc., 161 F. Supp. 2d 739, 746 (S.D. Tex. 2001) (“With respect to future benefits to be paid, the insurance carrier is entitled to a set-off, as opposed to a right of subrogation.  As the waiver of subrogation has no effect on the right of set-off, a defendant still has an interest in the terms of plaintiff’s settlement in so far as future benefits are involved.  Hence, for this reason, the Fifth Circuit has held on repeated occasions that even with a waiver of subrogation, a plaintiff’s right to future benefits is terminated if it settles its claim against a third-party without the consent of the insurance carrier.”) (emphasis in original).

So what does Section 33(g) boil down to?  Dotting i’s and crossing t’s.  If the strict procedural requirements are not followed, future benefits (indemnity and medical) are forfeited.