A compromise and release (C&R) is an agreement in which the insurance company pays the injured worker a lump sum check to settle the entire workers’ compensation case. The value of the settlement is determined mainly by the present (and projected future) lost wages and medical care expenses.
A C&R will occur in two situations:
- when the injury has been denied by the insurance carrier
- when the injured worker’s condition is considered permanent and stationary, and the amount of disability has been determined
A C&R agreement must be approved by a workers’ compensation judge.
A judge does not have to approve a settlement if it is not fair to the injured worker.
An injured worker who settles with a C&R will not likely return to work for the same employer after the injury.
An injured worker can redo a C&R if there is a valid reason the C&R was incorrectly approved.
In this article, our California labor and employment attorneys will explain:
- 1. What is a compromise and release?
- 2. What does a settlement agreement contain?
- 3. What is the process for executing a C&R?
- 4. Can a compromise and release be appealed?
- 5. The C&R is the most common way to settle a California workers’ compensation case
A Compromise and Release is a contract for the insurance company to pay an injured worker to end his or her workers’ compensation case.
1. What is a compromise and release?
A Compromise and Release agreement (C&R) is a settlement of an injured worker’s entire claim for worker’s compensation benefits.
An injured employee has the right to settle his or her claim.1 But he or she does not have to do so.
When an injured worker settles a claim by C&R, he or she gives up:
- the right to reopen the claim later
- any right for the insurance company to pay for additional medical treatment related to the work injury
However, a claimant can instead settle part of his or her claim and keep these items. This agreement is called a Stipulated Award.
1.1. Time and place of C&R approval
A C&R must be approved by a judge.2 It can be approved at any hearing, including a Mandatory Settlement Conference, a Status Conference, or workers comp trial.
A C&R can also be approved as a “walk through,”3 meaning the injured worker can go before a judge without a hearing on the court calendar. A C&R can also be mailed to the court for approval.4
The insurer will agree to pay the C&R settlement within 30 days of its approval by a judge.
Example: Arnold’s case is set for a hearing. He recently saw his doctor, who told Arnold his condition had stabilized, and he was unlikely to improve.
Arnold attends the hearing. The attorney for the insurance company offers to settle Arnold’s case for $24,000. Arnold agrees and signs the C&R.
At the hearing, the judge approves the settlement. Arnold’s case is over. He will be mailed a check within 30 days of the hearing.
1.2. Settlement at the California Workers’ Compensation Appeals Board
The insurance company will give the injury claim a claim number after the employee files a claim for workers’ comp benefits. A claim number is different from the case number. A case number is assigned by the Worker’s Compensation Appeals Board (WCAB) when a document is filed with the court.
Normally the first document that will be filed with the court is the Application for Adjudication of Claim. This will give the claim a case number.
If there is no application filed, the C&R settlement will be the first document filed with the court.5 Therefore, the case number will be given at the time of settlement.
If there is an attorney for the injured worker, he or she will take 15% of the total settlement amount.
Example: Darcy has been satisfied with the benefits provided by the insurance company for her injury.
When it’s time for her claim to end, the insurance company adjuster calls Darcy and negotiates a Compromise and Release for $16,000.
The insurance company mails the agreement to Darcy to sign. She returns it to the insurance company.
The insurance company takes the agreement to the WCAB to walk thru a settlement.
A judge reviews the settlement amount and the medical reporting and approves the agreement.
Darcy will be paid within 30 days.
1.3. Return to work
An insurance company will only agree to a C&R if the injured worker is not returning to work for the employer.
As a C&R ends the worker’s entire claim, if the worker returns to the same job, he or she could file another claim.
1.4 Is the compromise and release settlement taxable?
Workers’ compensation benefits are not taxable. This includes payments an injured worker receives in a Compromise and Release workers’ compensation settlement.12
Example: Joan receives a C&R settlement of $85,000. In the same year Joan earns $30,000 working.
Joan’s taxes will only be calculated based on the $30,000 Joan earns working. She will not be taxed on the $85,000 C&R. She gets to keep the entire $85,000.
2. What does a settlement agreement contain?
A Compromise and Release includes:
- the date of injury
- case number
- injured body parts
- where the injury occurred
- whether it is a specific injury or cumulative trauma
- whether there is temporary disability or permanent disability
- the dollar value of the settlement6
A C&R in a case where the worker dies (a death benefits case) must include:
- date of death
- name of widow/widower
- name and ages of all children
- names of all other dependents
- whether dependents were totally or partially supported by the deceased worker
- amount of death benefit
- who the death benefit is paid to
The C&R will end an injured worker’s claim to receive any further amount of money for the dates of injury and parts of the body listed.
The agreement may list the injured worker’s average weekly wage, amount of temporary disability, and amount of permanent disability. But this information is not required.
There may be deductions from the settlement for permanent disability, an overpayment of temporary disability, or other deductions.
2.1. How is a compromise and release settlement calculated?
A C&R is meant to settle every issue in an injured worker’s case except for the Supplemental Job Displacement Voucher, which can only be settled in specific situations.
The value of the settlement comes mainly from the amount of permanent disability and future medical care that the injured worker will receive. The temporary disability has usually already been paid while the employee is still being treating for his or her injury and cannot work.
Permanent disability
The amount of permanent disability benefits an injured worker receives is based on the severity of the injury. A doctor will give the injured worker a rating for each part of the body that is injured. The percentage of disability is converted into a dollar value.
If the insurance company hasn’t paid the permanent disability at the time of the C&R, it will be included in the C&R value.
Future medical care
No one knows how much future medical care an injured worker will need in the future for his or her injury. But the insurance company can estimate the value based on what it pays other injured workers.
In a C&R, the insurance company offers the injured worker a lump sum cash payment instead of continuing to pay for the injured worker’s medical care.
Some C&Rs may require a Medicare Set Aside. When an injured worker is receiving Medicare, some of the settlement money must be set aside to pay for Medicare medical expenses.
2.2. Settlement of other issues
An injured worker will be asked to initial and specifically agree to also settle:
- earnings (average weekly wage)
- temporary disability (wage loss payments)
- jurisdiction
- apportionment (portion of the injury pre-existing or not caused by work)
- employment (injured worker was an employee when injured)
- injury aoe/coe (it is a work injury)
- serious and willful misconduct (employer intentionally caused the injury)
- discrimination (employee fired for filing a claim)
- statute of limitations (claim was timely filed)
- self -procured medical treatment (injured worker got medical treatment on his or her own)
- supplemental job displacement benefits ($6,000 voucher for retraining)
An injured worker’s signature on a C&R must have two witness signatures or be notarized.
The family of injured worker can’t later file a death claim after a C&R settlement is reached.
A C&R must be approved by a workers’ compensation judge. The judge has to make sure the settlement is adequate based on the injury and medical reporting and benefits already paid.
3. What is the process for executing a C&R?
A C&R must be approved by a workers’ compensation judge. The judge has to make sure the settlement is adequate based on the injury and medical reporting and benefits already paid.7
There are generally two types of cases that are settled by a C&R – disputed injury or based on medical reporting. They require different types of information for a judge to review.
3.1. Disputed injury
When an insurance company denies an injury, it does not provide benefits. The only way for an injured worker to get benefits is to have a trial and have a judge determine that there is a work injury, or the worker can settle the claim with a C&R.8
Example: Isaac claims he injured his back falling off a ladder. No one saw it happen.
His supervisor believes Isaac injured his back helping a friend move over the weekend. Based on this the insurance company denies the claim.
Instead of having a trial to determine whether his injury was work-related, Isaac agrees to accept a settlement of $15,000 with a C&R.
If Isaac lost his trial, he would receive nothing. The judge knows this and approves the settlement.
3.2. Based on medical reporting
When the insurance company is providing benefits, the injured worker’s case will not settle until his or her condition is determined by a doctor to be permanent and stationary, meaning it is unlikely to improve further.
The judge will not approve the settlement until the injured worker has had all the necessary treatment and his or her condition has stabilized.
At that point, a medical report will provide the percentage of permanent disability. The judge can determine if the settlement is in line with the value of the permanent disability and future medical care.
The judge will request that the medical report on which the settlement is based must be filed with the court along with the C&R.
Example: Karen’s injury was accepted by the insurance company. Her condition is determined to be permanent and stationary.
The permanent disability of her injury is worth $19,000. The remainder of the value is the future medical care.
Karen agrees to settle her claim for $35,000.
3.3. Failure to approve C&R
A judge has several options when considering whether to approve a C&R.
A judge can:
- issue an order approving the C&R
- request that the medical reporting the settlement is based on be rated for the percentage of disability by the Disability Evaluation Unit
- give the parties up to 30 days to modify the settlement as suggested by the judge
- set the case for a hearing9
Example: Brett agrees to settle his California workers’ compensation claim with a C&R for $7,500. An insurance company attorney tries to get it approved by a judge at the WCAB.
The judge doesn’t think $7,500 is enough money to settle Brett’s case.
The insurance company contacts Greg and agree to settle the case for $12,000. The judge approves the settlement.
4. Can a compromise and release be appealed?
An injured worker can appeal10 a judge’s Order Approving a C&R or reopen it for good cause.11
Example: Debra settles her claim with a C&R. After the settlement, Debra realizes the insurance company had given her incorrect information regarding the value of the case.
Debra files a Petition to Reopen her claim to get a new agreement at a higher amount.
5. The C&R is the most common way to settle a California workers’ compensation case
Most injured workers prefer to settle the entire workers’ compensation case. It gives an injured worker an immediate lump sum settlement.
The benefit of future medical care may not be appealing to an injured worker as he or she may have private health insurance. The injured worker does not necessarily need the workers’ compensation insurance company to pay for future medical care.
When contacted by the insurance company about a C&R settlement, an injured worker should carefully consider his or her case’s value. An injured worker should attempt to negotiate a settlement and not rush into an agreement.
Call us for help…
Contact our law firm for legal advice. Our workers’ compensation attorneys create attorney-client relationships throughout the state.
For help with filing a workers’ compensation system claim in California, completing workers’ comp forms or appealing a denial of benefits, contact us at Shouse Law Group. Our firm helps police officers, firefighters and other workers to get compensation for their job-related injuries in California.
Legal References:
- Cal. Lab. Code § 5000.
- Cal. Lab. Code § 5001.
- Cal. Code Regs. tit. 8, § 10417.
- Cal. Labor Code section 5002.
- Cal. Code Regs. tit. 8, § 10878.
- Cal. Lab. Code § 5003.
- Cal. Code Regs. tit. 8, § 10882.
- Cal. Code Regs. tit. 8, § 10870.
- DWC/WCAB Policy and Procedural Manual § 1.90 (rev. 2013).
- Cal. Lab. Code § 5900.
- Cal. Lab. Code § 5803; see also California Ins. Guarantee Assn. v. San Diego County Schools Risk Management etc., (Fourth Appellate District, Division One, 2019) 41 Cal. App. 5th 640.
- IRS Pub. 525, Taxable and Nontaxable Income, p. 18