The Utah Supreme Court has ruled that workers' compensation carriers must factor in both past payments and projected future benefits when calculating their share of legal fees tied to third-party settlements.
The decision stems from a catastrophic 2013 construction accident that left a worker permanently disabled. After the worker secured a $5 million third-party settlement, more than $2.1 million went toward attorneys' fees and costs. Auto-Owners Insurance, which had been paying benefits, sought reimbursement for amounts already paid and a credit against future obligations. It argued that only the $1.57 million paid to date should determine its proportionate share of legal costs.
The court rejected that position. Because the carrier claimed both reimbursement and the right to offset future benefits, its financial interest in the settlement included anticipated long-term exposure. As a result, its share of the legal costs reflected the full scope of that exposure, not just what had already been paid.
The ruling also clarifies that a carrier must satisfy its portion of legal fees before applying a third-party settlement as a credit against future benefit payments. For Utah adjusters, the decision reinforces the need to evaluate lifetime medical projections and reserves carefully when assessing subrogation recoveries and settlement strategy.
