Commutations: A Sixty-Second Seminar in Workers’ Compensation Claims Handling

At a recent WCAB hearing, a judge was asked to approve a petition for commutation to enable an applicant to pay off a large credit card debt that was accruing interest at an annual rate of 22%. The applicant testified he could never get financially ahead in life as the interest charges alone were greater than what he received each month from workers’ compensation. As proof of his debt the applicant produced a copy of his latest credit card statement, which showed a balance due of $50,000, and a monthly interest charge of $909. Over the objection of the defendants, the judge allowed $50,000 to be commuted from the back end of the PPD award to pay off the credit card, thus saving the applicant over $900 per month in interest. In explanation of his decision, the judge stated that although commutation is a serious matter, it nevertheless was in the best financial interest of the applicant to grant the petition.

By way of history, when our state’s workers’ compensation laws were enacted, it was determined that permanent disability benefits would be paid every two weeks to protect disabled workers from spending their settlement all at once. The legislature did not want injured workers to become destitute and a burden on society. Therefore, for the protection of injured workers and to provide a steady source of income, the legislature required PD payments be issued biweekly, with commutation allowed only in special circumstances, and only upon a showing of good cause.

Interestingly, in the case above, nobody bothered to ask the applicant why his $50,000 credit card bill was so high. Apparently, everyone simply assumed that he had used his credit card to buy food, household products, and clothes, in addition to paying rent and everyday living expenses. Had the claims administrator taken the time to request copies of past credit card statements, the truth would have been revealed: over the preceding several months, the applicant used his credit card to pay for two trips to Las Vegas. In addition, the card was used to pay off gambling debts at three casinos. There were also multiple charges for liquor store and cannabis dispensary purchases. Finally, the card was used to pay for entertainment at a local “gentleman’s club.” One does not have to guess what a judge would have done had the applicant petitioned for a commutation beforehand so that going forward he would have money to spend at liquor stores, casinos, and a gentleman’s club. Yet, because these very same charges were applied to a credit card, the judge and the claims administrator were duped into believing the card had been used to pay for legitimate, everyday living expenses.

The lesson to be learned here is to always do your homework. It does not take much effort for an applicant to produce a copy of past credit card statements to enable the judge to examine expenditures. For an applicant to simply produce a statement showing a “balance forward” of $50,000, absent an itemization of charges, is a recipe for trickery and deceit.

Before ending today’s blog, we wish to offer another procedural tip. Whenever dealing with a claim involving a life pension, if a commutation is to be granted, then always request it be taken off the side of the PPD award. By applying the commutation off the side, as opposed to the end of the award, the parties will avoid a hiatus of the life pension start date.