P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)




Claim No. 85028349

An administrative law judge (ALJ) for the Worker's Compensation Division of the Department of Workforce Development issued a decision in this matter. Timely petitions for review were filed.

The commission has considered the petitions and the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review, the commission agrees with the decision of the ALJ, and it adopts the findings and order in that decision as its own, except that it makes the following modifications:

1. Delete the last paragraph of the ALJ's Findings of Fact and substitute:

"Accordingly, the respondent and insurer are entitled to recover $54,445.07, as the stipulated overpayment by the parties. The respondent and insurer may collect the overpayment by retaining as a credit the full amount of the applicant's periodic payments for disability compensation until the sum of $54,445.07 has been fully recovered."

2. Delete the second paragraph of the ALJ's Order and substitute:

"The respondent and the insurer may retain as a credit against the overpayment the full amount of the applicant's periodic payments for disability until the sum of Fifty-four thousand four hundred forty-five dollars and seven cents ($54,445.07) has been recovered. The respondent and the insurer shall provide supplementary reports on form WKC-13 with updates as to the status of the overpayment."


The findings and order of the administrative law judge, as modified, are affirmed.

Dated and mailed: March 12, 1998
moserja . wmd : 101 : 3  ND � 5.43  � 8.45

/s/ David B. Falstad, Chairman

/s/ Pamela I. Anderson, Commissioner

/s/ James A. Rutkowski, Commissioner


a. Background.

The employer and its insurer concede a May 29, 1985 compensable injury occurring when the applicant got his arms entangled in a rock crushing machine. The applicant lost both arms. The applicant was thus permanently and totally disabled as a matter of law under Wis. Stat. � 102.44 (2), as of the point he reached an end of healing. Accordingly, the employer's insurer, Liberty Mutual Insurance Company (Liberty Mutual) paid the applicant temporary total disability (TTD) to his July 15, 1993 healing plateau date, and paid permanent total disability (PTD) thereafter until March 22, 1996. The parties agree the applicant continues to be permanently and totally disabled.

Liberty Mutual stopped paying PTD in March 1996 based on an overpayment resulting from the applicant's entitlement to social security disability benefits as of July 1986. Workers compensation disability benefits are subject to a "reverse social security offset" under a formula set out in Wis. Stat. � 102.44 (5). In this case, given the reverse social security offset, the applicant should have been paid varying amounts from $130 to $237 per week beginning in July 1986, rather than the $275 weekly rate he was paid. The parties agree that, as a result, the applicant has been overpaid $54,445.07 to the point when the insurer cut off PTD payments in March 1996.

This case presents an added level of complication because the applicant also received a cash settlement from the Pettibone Corporation, the manufacturer of the rock-crushing equipment the applicant was using when injured. The amount of the settlement to the applicant from Pettibone's insurer was $250,000. The applicant's wife received an additional settlement in an equal amount.

Third party settlements, such as the one from Pettibone Corporation, are subject to the statutory subrogation scheme in Wis. Stat. � 102.29. Under the scheme, the applicant's attorney received one-third of the $250,000 settlement, plus $27,027.50 in costs, for a total of $110,360.83. The applicant received one-third of the remaining amount after payment of the attorney, or $46,546.38. Liberty Mutual received the rest, or $93,092.78.

Liberty Mutual objected to the settlement, in part because of the payment to the applicant's wife which was not subject to the 102.29 subrogation lien. Further, the $93,092.78 figure did not make Liberty Mutual whole for the $427,486.93 the insurer had already paid in compensation ($140,682.83 in disability and the remainder in medical expenses), much less for its continuing liability (1). Nonetheless, a federal district court approved the settlement, and required Liberty Mutual to accept the $93,092.78 "as full and final settlement of all claims which it may presently or in the future have against [Pettibone, its successors in interest], and any entity responsible for them, arising out its statutory Workers Compensation Lien." (2)

b. Discussion.

There are two separate issues here. The first issue is whether the terms of the federal district court decision affects Liberty Mutual Insurance's right to recoup from the applicant the overpayment of compensation due to the social security reverse offset. Assuming Liberty Mutual may recoup the overpayment, the second issue is the manner in which it may do so.

The ALJ concluded that the federal district court decision dividing the third party settlement did not affect Liberty Mutual's right to attempt to collect the $54,445.07 overpayment due to the social security reverse offset. The commission concludes the ALJ's decision on this point is entirely correct.

First, the federal district court order only states that Liberty Mutual must accept the $93,092.78 as settlement of its rights against Pettibone and its insurer under Wis. Stat. � 102.29. The court order does not purport to settle claims between the applicant and Liberty Mutual.

Second, the social security reverse offset under Wis. Stat. � 102.44 (5) and third party settlement proceeds under Wis. Stat. � 102.29 are simply different things. The only relationship is that, in a hypothetical case, if a workers compensation insurer collects an overpayment due to the social security offset under Wis. Stat. � 102.44 (5), the amount of compensation it will have paid would decrease, which might in turn affect the "cushion" under Wis. Stat. � 102.29. (3) In this case, though, even after Liberty Mutual collects the entire $54,445.07 it overpaid as a result of the reverse social security offset, Liberty Mutual still would have paid out far more to the applicant than the amount it got back as part of the third party settlement from Pettibone. There still would be no "cushion."

The commission has considered the case cited by the applicant, Tower Ins. Co., Inc., v. Carpenter, 205 Wis. 2d 365 (Ct. App., 1996), but must conclude it is not on point. Carpenter's wife was killed in an automobile accident. American Family insured the at-fault driver, and offered to pay up to its policy limit in exchange for release in favor of it and the at- fault driver whom it insured. Carpenter's attorney then demanded Carpenter's insurer, Tower, pay to the limit of Carpenter's under-insurance policy, another $50,000. Tower agreed, and sent Carpenter a check. Tower later determined it in fact had no liability as American Family's $100,000 policy limit exceeded Tower's $50,000 under-insurance policy limit. Tower then demanded its check back, and sued when Carpenter refused to return it. The circuit court and court of appeals held for Carpenter, applying the doctrine of accord and satisfaction. The court noted that, as Carpenter had two cars insured with Tower, each with a $50,000 under-insured motorist coverage, Carpenter had at least a colorable claim against Tower for more than the $50,000 it eventually paid him. Under these circumstances, the court viewed payment of the $50,000 as a settlement accepted in good faith, which, even if perhaps mistaken, was final. Id., at 371-75.

The current case is much different. For one thing, any "settlement" here was between Pettibone and the applicant or between Pettibone and Liberty Mutual, not between the applicant and Liberty Mutual. For another, the claim settled was Pettibone's liability under the third party claim, not Liberty Mutual's liability to the applicant, or the applicant's liability to Liberty Mutual. Had Liberty Mutual compromised its claim with the applicant when the third party settlement was approved, and then tried to collect the overpayment under the social security offset, the holding in Tower Ins. Co. v. Carpenter could potentially apply. But that is not the case here.

The next issue is the manner in which Liberty Mutual may collect the overpayment. In general, overpaid temporary disability benefits may be offset against unpaid or unaccrued permanent disability benefits. (4) The commission has followed this practice specifically in cases where an overpayment of temporary or permanent disability resulted from the reverse social security offset. (5)

Because the applicant is permanently and totally disabled, he continues to accrue $237.25 in PTD each week, the reverse social security offset notwithstanding. The ALJ ordered Liberty Mutual to pay the applicant $175 per week, while applying the remaining $62.25 against the $54,445.07 overpayment. Liberty Mutual appeals, contending it should be able to apply the entire weekly payment of $237.25 against the overpayment, and pay the applicant nothing until the entire $54,445.07 has been recouped. (6)

Although there is no statutory authority for ordering the insurer to make partial payments while it recovers its overpayment, there is some precedent for the type of equitable order the ALJ issued in this case. Indeed, the commission acknowledges it has issued a similar type of decision in the past, ordering an insurer to pay half the applicable permanent disability rate to an injured worker while applying the other half against the overpayment from a reverse social security offset. (7) In that case, though, the overpayment was recouped in five years through the partial reduction in benefits, not nearly twenty years as would be the case under the ALJ's order here.

The facts justify a quicker recoupment in this case. The applicant and his wife received a sizable third party settlement and the applicant continues to collect social security benefits. Further, of course, the applicant essentially received a large advance in his workers compensation award, as a result of the payment of benefits to which he was not actually entitled. The commission has considered the applicant's statement of monthly income and expenses. Under the facts of this case, however, the fairest result is to allow Liberty Mutual to withhold the entire PTD payment until the overpayment is recouped in full.



Appealed to Circuit Court. Reversed in part (as to repayment issue) December 29, 1998.  Appeal and Cross-Appeal to Court of Appeals withdrawn following compromise agreement.

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(1)( Back ) Since the amount Liberty Mutual received from the third party settlement is less than the amount it has paid, there is no "cushion" in this case. See footnote 4 of this memo.

(2)( Back ) Jay Moser and Dana Moser v. Pettibone Corporation, no. 3:93-CV-119BC , slip op. at 6-7 (S.D. Miss., February 23, 1995).

(3)( Back ) If the WC insurer's share of the third party settlement exceeds what the insurer has paid in compensation to date, the excess may be placed in a "cushion" account, to be applied to future payments for which the WC insurer may be liable.

(4)( Back ) McCune v. Industrial Commission, 260 Wis. 499, 501-02 (1952). See also Neal & Danas, Workers Compensation Handbook, � 5.43 (4th ed. 1997).

(5)( Back ) Jared Gagnon- Palick v. United Sewer & Water, WC case no. 92000536 (LIRC, August 27, 1997); Richard W. Drake v. Mews Trucking, WC case no. 90068259 (LIRC, July 2, 1997); Joann Hartwig v. Red Carpet Hotel, WC case no. 86-050582 (LIRC, October 1, 1991); and Jeffrey Brazeau v. Clear Vu Window Cleaning, WC case no. 88036712 (LIRC, October 9, 1995).

(6)( Back ) If Liberty Mutual retains the entire $237.25 weekly payment, it evidently will recoup the overpayment some time in the year 2000. If it retains only $62.25, it will take until about 2012 to recoup the overpayment, unless the applicable PTD rate increases when the social security offset is re-determined.

(7)( Back ) Brazeau, supra.