ArvinMeritor, Inc. v. Clifton Johnson, 331 S.W.3d 267 (Ala. Civ. App. Feb 25, 2011)

Can a court unilaterally modify or supplement the essential terms of a workers’ compensation settlement agreement that has been incorporated into a judgment? 

In ArvinMeritor, the claimant filed a claim for workers’ compensation benefits against the employer in 1999.  In 2003, the trial court found the claimant to be 100% permanently disabled as a result of an occupational disease and required employer to pay workers’ compensation disability benefits and all future medical benefits related to claimant’s occupational disease.  Additionally, the claimant filed a third-party claim against tortfeasors for the same occupational disease.

In November, 2008, the claimant reached a settlement with the third-party tortfeasors for an amount in excess of past workers’ compensation payments made by the employer.  In an effort to avoid double compensation pursuant to Ala. Code 1975, § 25-5-11(which gives the employer the right to credit third-party proceeds against its liability for workers’ compensation benefits, and a right to subrogation with respect to employee’s recovery of medical expenses from the third party), the employer and the claimant reached a settlement agreement.

In January, 2009, the employer and the claimant petitioned the trial court for approval of their settlement.  The proposed settlement stated that a Medicare set aside trust would be established and would cost $83,936.17.  However, at this point in time, CMS had not approved the Medicare set aside trust.  The proposed settlement further stated that the employer will contribute up to $65,000.00 to fund the Medicare set aside trust and the remaining balance shall be paid by claimant.  The trial court approved the settlement prior to CMS’s approval of the Medicare set aside trust.

In July, 2009, the claimant filed a petition with the trial court stating that the Medicare set aside trust described in the settlement had not been established and the employer had stopped paying claimant’s medical expenses.  Claimant indicated that he was ready and willing to pay his portion of the Medicare set aside trust ($18,936.17), as set out in the settlement.  At that time, the employer’s counsel stated that CMS required an amount significantly higher than the proposed Medicare set aside trust of $83,936.17.  The employer argued that they were ready and willing to pay the $65,000.00 they had agreed to pay in the approved settlement and the claimant was responsible for the difference.

The trial court essentially concluded that the employer “induced” the claimant to agree to the settlement by making him believe he would only be responsible for the remainder balance of the Medicare set aside of $18,936.17, as the Medicare set aside allocation was not presented to the claimant as a mere estimate.  Based on the above reasoning, the trial court ruled that the employer is responsible for the remainder exceeding $18,936.17 and is required to pay the claimant’s medical expenses until the Medicare set aside trust was funded in its entirety.

On appeal, the Alabama Court of Civil Appeals reversed the part of the trial court’s holding concluding that the court cannot “unilaterally modify or supplement the essential terms of a workers’ compensation settlement agreement that has been incorporated into a judgment.”  The terms of the settlement were ambiguous and the parties had failed to provide in their settlement agreement that the cost of the Medicare set aside agreement may exceed $83,936.17, and it is not the role of the court to advise the parties on settlements.

In addition to holding the trial court in error for “imposing a legally incorrect remedy”, the appellate court also ruled that the employer was responsible for paying medical costs for the claimant’s occupational disease.