How do Workers’ Compensation Settlements Work in Construction?

How do workers’ compensation settlements work?

Understanding workers’ compensation settlements is essential for commercial construction contractors and project owners. Workplace injuries are common in construction sites, and when they happen, workers’ compensation provides a safety net, covering medical care and lost wages. At the same time, it protects employers from prolonged lawsuits and unexpected financial burdens.

However, settling a workers’ comp claim is not always straightforward. Factors like state-specific laws, medical coverage considerations, and resignation requirements can all impact the process. Settling a claim too quickly or without proper preparation can lead to unintended consequences, making it crucial for employers to understand the settlement process before proceeding.

What is a workers’ compensation settlement?

Workers’ compensation is insurance that provides medical benefits and wage replacement to employees who suffer work-related injuries or illnesses. It protects both workers and employers—employees receive support without needing to file lawsuits, while employers avoid costly litigation and stay compliant with state regulations.

A workers’ compensation settlement is an agreement between an injured worker and their employer (or the employer’s insurer) to resolve a workers’ comp claim. Instead of receiving ongoing benefits, the injured worker accepts a lump sum or structured payment. These settlements offer financial certainty for workers while allowing employers to limit future liabilities.

A worker’s comp settlement typically covers expenses, such as:

• Attorney fees: Legal costs incurred during the claims process
• Medical bills: Payment for hospital stays, doctor visits, and treatments
• Surgery and future medical treatment: Costs for necessary surgeries and any ongoing care
• Disability payments: Compensation for temporary or permanent disability
• Lost wages and future wage loss: Reimbursement for income lost due to time off work and potential future earnings impacted by the injury

Key considerations for settling a workers’ compensation claim

Before finalizing a workers’ compensation settlement, employers must review several key factors to ensure compliance and fairness.

1. Venue and jurisdictional considerations

Workers’ compensation laws vary by state, which means settlement rules differ depending on where the claim is filed. Some states allow full and final settlements, which close the case entirely, while others require ongoing benefits for certain medical conditions.

Employers and contractors should consult legal professionals to navigate state-specific regulations and ensure settlements are appropriately executed.

2. Medical benefits: included or separate?

A central question in any settlement is whether medical benefits will be part of the agreement.

In some cases, medical expenses remain open, allowing the injured worker to continue receiving coverage. However, a full and final settlement often includes future medical costs as a lump sum, requiring workers to manage their healthcare expenses independently.

3. Medicare Set-Aside (MSA) requirements

If the injured worker is a Medicare beneficiary (or likely to become one soon), a Medicare Set-Aside (MSA) arrangement may be necessary.

An MSA is a portion of the settlement allocated explicitly for future medical expenses related to the injury. If the MSA is not set up correctly, Medicare may refuse to cover injury-related treatment costs, leading to potential legal complications.

4. Resignation and separate consideration

Some workers’ compensation settlements require the injured employee to resign as part of the agreement. If so, employers may need to offer separate consideration to ensure the resignation is legally enforceable.

Employers must tread carefully to comply with labor laws and avoid potential wrongful termination claims. Working with legal professionals can help mitigate risks and ensure the agreement is structured fairly and lawfully.

5. Full and final vs. open-ended settlements

Not all workers’ comp settlements close a case entirely. A full and final settlement resolves all aspects of the claim, including lost wages, medical expenses, and disability benefits. Alternatively, some settlements leave certain elements open, such as ongoing medical coverage or future permanency benefits. Contractors and project owners should evaluate which approach best fits their risk management strategy.

6. Third-party considerations and subrogation rights

If a third party (such as a subcontractor or equipment manufacturer) played a role in the worker’s injury, subrogation rights allow the employer or insurer to seek reimbursement from that party.

Before finalizing a settlement, employers should determine whether subrogation is possible and whether they will compromise these rights to expedite the settlement process.

Employer considerations beyond the settlement

Settling a workers’ comp claim isn’t just about closing a case. It also has long-term implications for the employer. Here are a few additional factors that contractors and project owners should consider:

• Experience Modification Rate (EMR) impact: A settlement may affect the company’s experience modification rate (EMR), influencing workers’ compensation insurance premiums. A large settlement could increase costs, so employers should assess the financial impact beforehand.
• Large deductible programs: Employers with large deductible workers’ comp programs may need to cover significant payout before insurance coverage kicks in. Companies should prepare for potential deductible expenses tied to the settlement.

Do all workers’ compensation claims end in a settlement?

No, not all workers’ compensation claims result in a settlement. Some claims are resolved through ongoing benefit payments, where the injured worker continues to receive medical care and wage replacement under the employer’s workers’ comp insurance. In cases of severe injuries or permanent disabilities, a structured long-term payment plan may be a better option than a lump sum settlement.

Disputes over liability or benefit eligibility can also prolong the claims process, making settlement negotiations more complex. Employers and employees should carefully evaluate whether settling is the best option for their situation.

Understanding workers’ compensation settlements

Workers’ compensation settlements can provide resolution and financial certainty for employees and employers, but they require careful evaluation. Multiple factors must be considered, from state-specific laws and medical benefits to resignation clauses and subrogation rights.

For commercial construction contractors and project owners, working with experienced legal and insurance professionals helps ensure that settlements are structured effectively, minimizing risk while supporting injured workers. Employers who understand the complexities of workers’ comp settlements can make informed decisions that protect their business and workforce.