SSR 71-15a: SECTION 224 -- DISABILITY INSURANCE BENEFITS -- REDUCTION OF BENEFITS -- COMPROMISE LUMP-SUM SETTLEMENT OF WORKMEN'S COMPENSATION PAYMENTS

20 CFR 404.408

SSR 71-15a

The claimant became entitled to disability insurance benefits, beginning June 1967, as a result of an impairment suffered in an industrial accident. In connection with her claim under the Missouri Workmen's Compensation Law, her employer and its insurer disputed the nature and extent of her compensable injury. The parties entered into a lump-sum compromise settlement, including legal fees, which was approved by a referee of the Division of Workmen's Compensation. Held, the compromise payment was a substitute for the periodic payments provided by the workmen's compensation law, and section 224 of the Social Security Act requires that the claimant's disability insurance benefits be reduced to the extent of the lump-sum compromise settlement less the amount specified therein for legal expenses.

The claimant was injured in an industrial accident in September 1966, and was paid temporary total workmen's compensation benefits. She became entitled to disability insurance benefits beginning in June 1967. Her employer and its insurer questioned the nature and extent of disability suffered by the claimant as a result of the industrial accident. At a conference held in May 1968 before a referee of the Division of Workmen's Compensation, pursuant to the Revised Statutes of Missouri (1959) section 287.380, a lump-sum compromise settlement of her claim under the Missouri Workmen's Compensation Law was reached. Notified of this settlement in October 1968, the Social Security Administration informed the claimant that her disability insurance benefits would be withheld from November 1968 through 1971 since she received a lumpsum workmen's compensation payment as a substitute for periodic payments. The claimant objected to this reduction in her benefits.

The Social Security Act provides in pertinent part:

Reduction of Benefits Based on Disability on Account of Receipt of Workmen's Compensation

Sec. 224. (a) If for any month prior to the month in which an individual attains the age of 62 --

(1) such individual is entitled to benefits under section 223, and

(2) such individual is entitled for such month, under a workmen's compensation law or plan of the United States or a State, to periodic benefits for a total or partial disability (whether or not permanent), and the Secretary has, in a prior month, received notice of such entitlement for such month,

the total of his benefits under section 223 for such month and of any benefits under section 202 for such month based on his wages and self-employment income will be reduced (but not below zero) by the amount by which the sum of --

(3) such total of benefits under sections 223 and 202 for such month, and

(4) such periodic benefits payable (and actually paid) for such month to such individual under the workmen's compensation law or plan, exceeds the higher of --

(5) 80 per centum of his "average current earnings", or

(6) the total of such individual's disability insurance benefits under section 223 for such month and of any monthly insurance benefits under section 202 for such month based on his wages and self-employment income, prior to reduction under this section.

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(b) If any periodic benefit under a workmen's compensation law or plan is payable on other than a monthly basis (excluding a benefit payable as a lump sum except to the extent that it is a commutation of, or substitute for periodic payments), the reduction under this section shall be made at such time or times and in such amounts as the Secretary finds will approximate as nearly as practicable the reduction prescribed by subsection (a).

Section 404.408(d) of the Social Security Administration Regulations No. 4 (20 CFR 404.408(d)), prior to amendment in January 1970, provided that amounts included in the workmen's compensation award which are specifically identifiable as being for medical, legal, or related expenses paid or incurred by the individual in connection with his workmen's compensation claim, or the injury or occupational disease on which it is based, are excluded in computing the reduction. As amended, the section provides that such expenses incurred by the individual in connection with his workmen's compensation claim, or the injury or occupational disease on which the award or agreement is based, are excluded in computing the reduction to the extent that they are consonant with State law. Such medical, legal, or related expenses for purposes of exclusion from the workmen's compensation award or compromise agreement may be established by the compensation award, compromise agreement, or court order which specifies or itemizes the amount of such expenses included in the workmen's compensation award or agreement. In addition, amounts specified or itemized in the workmen's compensation award or compromise agreement as reimbursement for anticipated medical expenses are excluded from such award or agreement in computing the reduction, but anticipated medical expenses not so specified or itemized may not be excluded. In the event that a compensation award, agreement, or court order does not specify the amount of reimbursement included for the aforementioned expenses paid or incurred, and the individual alleges such expenses were paid or incurred by him, they may be established by a detailed statement from the individual's attorney, physician, or the employer's insurance carrier, or bills, receipts or cancelled checks, or other clear and convincing evidence indicating the amount of these expenses included in the award or compromise agreement, or any combination of the foregoing evidence from which amounts of such expenses are determinable.

The record discloses that the claimant was paid temporary total workmen's compensation of $1,966.50 from December 19, 1966 to October 21, 1967 and was provided medical aid amounting to $5,181.86. The compromise agreement provides for the payment of a lump-sum settlement in the amount of $7,350 which, in addition to the amount paid previously, constitutes an aggregate workmen's compensation payment of $9,316.50. Although the compromise agreement allows 25% of the lump-sum payment for legal fees pursuant to Missouri statute, no additional allocation is specified for medical expenses paid, incurred, or anticipated in connection with the claimant's workmen's compensation claim or the injury on which it is based.

The claimant contends that reduction under section 224 against her disability insurance benefits should not be made because the compromise settlement was not a commutation of, or substitute for periodic payments.

The Revised Statutes of Missouri (1959) reads, in pertinent part of section 287.390:

Compromise settlements, how made -- validity, effect, settlement with minor dependents

1. Nothing in this chapter shall be construed as preventing the parties to claims hereunder from entering into voluntary agreements in settlement thereof, but no agreement by an employee or his dependents to waive his rights under this chapter shall be valid, nor shall any agreement of settlement or compromise of any dispute or claim for compensation under this chapter be valid until approved by a referee or the commission, nor shall a referee or the commission approve any settlement which is not in accordance with the rights of the parties as given in this chapter. No such agreement shall be valid unless made after seven days from the date of the injury or death, provided a report of injury shall have been on file with the division at least five days prior to the date of compromise settlement.

Specifically, this section of the State statute does not prevent parties to workmen's compensation claims from making voluntary agreements in settlement of such claims. However, such agreement of settlement or compromise of any dispute or claim for compensation becomes valid only when approved by a referee or a commission in accordance with the rights of the parties established by the Missouri Workmen's Compensation law. The appellate court of Missouri has held in Mosier v. St. Joseph Lead Co., 205 S.W. 2d 227 (St. Louis Ct. of App., Mo., 1947), that the above quoted subsection of the Missouri Workmen's Compensation law contemplates the settlement of the entire workmen's compensation claim and the discharge of the employer's entire liability resulting from the industrial accident. In addition, approval of such compromise settlement by the commission or referee includes a finding that the claim was compensable. Morgan v. Duncan, 361 Mo. 683, 236 S.W. 2d (1951). Furthermore, lump-sum compromise settlements approved in accordance with the Missouri Workmen's Compensation law are binding on the parties and not subject to review by the courts. General Motors Corp. v. Holler, F.2d 297 (8 Cir., 1945).

The claimant's contention that reduction under § 224 should not be made because the compromise settlement was not a commutation of or substitute for periodic payments, was previously considered by the courts. In Walters v. Flemming, 185 F. Supp. 288 (D.Mass., 1960), the plaintiff had received weekly workmen's compensation payments until a lump-sum amount was agreed on between plaintiff and his employer's insurance company and approved by the Massachusetts Industrial Accident Board. The court held that this lump sum was not a commutation, but a substitute for periodic payments to which the plaintiff would otherwise be entitled, and hence that reduction was proper:

It is clear that, as the referee found, the lump sum payment here involved was not a commutation of the periodic payments to which plaintiff would otherwise be entitled, that is, it was not a payment in an amount determined by actuarial methods to be a present equivalent of such future periodic payments. Massachusetts law does not require that the amount of the lump sum payment be determined on that basis and there is nothing to show that it was so determined in this case. But regardless of how the amount was determined, plaintiff in return for payment of the lump sum surrendered his claim to future periodic payments. McCarthy's Case, 226 Mass. 444. The agreement which he signed agreed that it was to be received in redemption of the liability of the insurer for all weekly payments now or in the future due him under the Workmen's Compensation Act for all injuries received in the accident in which he was involved. He received the lump sum in place of the future periodic payments. Hence it was clearly, as the referee found, a substitute for such periodic payments. The fact that plaintiff had no absolute right to receive such a substitute and that a lump sum payment could be made only by agreement of the parties, subject to approval by the division of industrial accidents, Mass. G.L. Ch. 152, § 48, does not in any way alter the nature of the lump sum payment when made. It is still received in redemption of the future periodic payments and as a substitute for them.

It is apparent that in the instant case the compromise lump-sum payment was a substitute for periodic payments provided by the Missouri statute to which the claimant was entitled. Accordingly, the Appeals Council held that reduction from the claimant's disability insurance benefits is required under section 224 of the Social Security Act until absorption of the lump sum compromise settlement has been completed, less the legal expenses incurred by the claimant and specifically identified in the agreement.

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