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

As we well know, when a worker suffers an industrial accident, the worker may obtain workers’ compensation benefits from their employer, even if the employer was not at fault. And when the workers’ injuries are caused by a third party, the worker may also seek civil damages via a claim/lawsuit against the negligent tortfeasor. Also, to protect the financial interests of the employer, the employer is also allowed to recover its workers’ compensation expenditures from the third party, typically achieved by intervening in the lawsuit filed by the injured worker.

So that the employer’s subrogation rights are protected, Labor Code Section 3853 requires the worker to serve a copy of their civil complaint on the employer by personal delivery or by certified mail. Despite that, in many instances service is deliberately withheld as most injured workers attempt to hide their civil claims from their employers. In such instances the task of protecting the employer’s rights lands on the back of the claim’s administrator.

Of course, in every civil suit a plaintiff must prove damages, such as lost wages. To obtain supporting evidence of such loss, an injured often issues a subpoena to the WCAB to obtain their employment records.  To prove medical damages, the injured workers’ attorney requests a workers’ compensation benefits report from the claims administrator pursuant to Regulation 10635(b). Notice how in both situations described above, the employer is not included in the process. Such exclusion is done to hide the existence of worker’s civil lawsuit.

A huge red flag is unfurled when the third-party defendant issues subpoenas. The subpoena itself is a “smoking gun” identifying the existence of a civil suit with its case number listed on the document.  Upon receipt, the employer should immediately forward a copy of the subpoena to its claims administrator with instructions to research and pursue subrogation and credit rights. All too often many employers do not recognize the importance of sharing a subpoena with their administrator. They simply comply with the request for records and then file the subpoena away. 

A great example of clandestine litigation occurred a few years ago where a widow in a work comp death case proclaimed she had no intention of filing a third-party action, asserting it was against her religion to do so.  However, months later during a work comp claims review, the employer casually mentioned having received a subpoena.  Fortunately, the adjuster realized its significance and immediately investigated such that a civil action was discovered.  Over $270,000 was eventually recovered by the administrator on behalf of the employer, all thanks to the adjuster recognizing the importance of a subpoena.

There are times when a worker’s clandestine lawsuit is not discovered until after that case is closed out. In 2019, an employer became so enraged when an injured worker failed to notify them of a civil settlement (in total indifference to the notification requirements mandated under Labor Code Section 3860(a) and depriving the employer of their subrogation rights), the employer then filed a lawsuit against the employee and his attorney, seeking substantial damages for their deliberate violation of Labor Code 3860(a).  The case eventually settled out of court at a six-figure sum.