While many workers' compensation claims resolve without dispute, others end in a negotiated settlement that provides compensation in exchange for closing your claim. Understanding the settlement process helps you make informed decisions about whether to settle, when to settle, and how much compensation is fair for your injuries.
How Workers' Comp Settlements Work
A workers' compensation settlement is a voluntary agreement between you and the insurance company to resolve your claim. In most settlements, you receive a lump-sum payment or structured payments in exchange for giving up your right to future benefits related to the injury. Once you settle, you typically cannot reopen your claim—even if your condition worsens.
Settlements can occur at any point in your claim, though they're most common after you've reached maximum medical improvement (MMI) and the full extent of your injuries is known.
Types of Settlements
Stipulated findings and award (or stipulation with request for award) establishes the facts of your case and your disability rating, then provides ongoing payments based on that rating. This type of settlement keeps your medical benefits open for future treatment related to your injury.
Compromise and release (or full and final settlement) closes your claim completely in exchange for a lump-sum payment. You give up all future benefits, including medical treatment—the insurance company is no longer responsible for anything related to your injury. This type typically offers a larger lump sum because it eliminates the insurer's future liability.
What Goes Into Settlement Value
Several factors determine how much your workers' comp settlement is worth:
Medical expenses include both past treatment costs and estimated future medical needs. In a compromise and release, you're giving up free medical care, so the settlement should account for ongoing treatment you'll pay for yourself.
Disability benefits factor in your impairment rating and the weeks of benefits you'd receive if the claim continued through the normal process.
Lost wages include temporary disability benefits you've already received and any future wage loss if you can't return to your previous earning capacity.
Age and life expectancy affect settlement value because younger workers have more years of potential lost earnings and medical treatment ahead.
When to Consider Settling
Wait until you've reached MMI before settling—settling too early means you might not understand the full extent of your injuries and could accept less than your claim is worth. Once you settle, you can't go back for more if complications develop.
Settlement makes sense when you want closure and certainty, when you need a lump sum for a specific purpose, when the cost and stress of ongoing litigation outweigh potential benefits, or when your medical condition is stable and predictable.
When Not to Settle
Be cautious about settling if your condition is unstable or might worsen. Degenerative conditions, injuries requiring future surgeries, or situations where complications are common may warrant keeping medical benefits open rather than taking a full settlement.
Also reconsider if the insurance company is pressuring you to settle quickly, if you don't understand what you're giving up, or if the offer seems low compared to your actual losses.
The Settlement Negotiation Process
Settlement negotiations typically begin with the insurance company making an initial offer. First offers are usually low—the insurer expects negotiation. You or your attorney respond with a counter-offer, and negotiations continue until both sides agree or reach an impasse.
Factors that strengthen your negotiating position include clear medical evidence supporting your disability, strong documentation of your treatment and recovery, a treating physician who supports your restrictions and impairment rating, and realistic expectations about your claim's value.
Mediation and Hearings
If negotiations stall, you may pursue mediation—a process where a neutral mediator helps both sides reach agreement. Many workers' comp cases settle at mediation. If mediation fails, your case may proceed to a hearing before a workers' compensation judge, who can order benefits if you prove your case.
Court Approval Requirements
Most workers' comp settlements require approval from a workers' compensation judge or administrative agency. The judge reviews the settlement to ensure it's fair and that you understand what you're agreeing to. This protection exists because workers' comp is designed to help injured workers—courts want to ensure you're not being taken advantage of.
Taxes and Settlement Funds
Workers' compensation settlements are generally not taxable as income under federal and most state tax laws. However, if you've also claimed Social Security disability benefits, your settlement may affect those payments. Consult a tax professional if you have questions about your specific situation.
Medicare Considerations
If you're a Medicare beneficiary or expect to become one within 30 months, your settlement may need to include a Medicare Set-Aside (MSA)—funds set aside to pay for future medical treatment that Medicare would otherwise cover. Failing to properly address Medicare interests can result in Medicare refusing to pay for related treatment.
Getting Legal Help
Consider consulting a workers' compensation attorney before accepting any settlement offer. Attorneys understand the true value of claims and can negotiate on your behalf. Most workers' comp attorneys work on contingency, meaning their fee comes from the settlement—you don't pay upfront. The attorney's experience often results in higher settlements that more than offset their fee.