Who is responsible for repaying the remaining balance on a workers compensation lien after a personal injury settlement?
Detailed Answer
Short answer: Under North Carolina law, the injured worker is ultimately responsible for making sure the workers’ compensation lien is repaid out of any third-party personal injury settlement. In practice the worker’s attorney sets aside the lien amount in the trust account, pays the workers’ compensation insurer, and delivers the balance to the client. Failing to satisfy the lien can expose the worker (and sometimes counsel) to a lawsuit by the insurer or employer.
Where the lien comes from
When a work-related injury is caused by a negligent third party, North Carolina allows the employee to:
Receive workers’ compensation benefits from the employer/insurer, and
Pursue a separate personal injury claim against the at-fault party.
To prevent a double recovery, N.C. Gen. Stat. § 97-10.2 gives the employer or its carrier a statutory lien on the third-party recovery for the value of the workers’ compensation benefits already paid, plus the present value of future benefits it will owe.
Who must pay the lien?
The employee. Paragraph (f)(1) of § 97-10.2 says the net proceeds of the third-party claim “shall be applied” to the lien. The law places the duty on the employee to honor that obligation.
The employee’s attorney. State Bar ethics opinion 13 FEO 4 requires plaintiff’s counsel to protect known statutory liens. Therefore, North Carolina personal injury lawyers routinely hold the lien amount in trust and disburse it to the comp carrier before releasing funds to the client.
The at-fault party’s insurer does not pay the lien. Its only obligation is to settle the liability claim. After the settlement check is issued, responsibility shifts to the plaintiff side to satisfy the workers’ comp lien.
How much must be repaid?
The statute sets out a distribution formula that credits the employee for a pro-rata share of litigation costs and reasonable attorney’s fees before the lien is paid. For example, if litigation costs and fees equal one-third of the settlement, the lien is reduced by an identical one-third. In addition, under § 97-10.2(j) the Superior Court may further reduce or even eliminate the lien when fairness requires—often called a “Hudson reduction.”
What happens if the lien is ignored?
The workers’ compensation carrier can sue the employee for the unpaid lien, plus interest.
The carrier can seek reimbursement directly from the employee’s attorney if the attorney disbursed funds in violation of § 97-10.2 or the Rules of Professional Conduct.
Future comp benefits may be suspended until the lien is satisfied.
Hypothetical example
Assume you receive $60,000 in workers’ compensation benefits for a job-site shoulder injury. You later settle a third-party auto claim for $150,000. Your lawyer spends $5,000 in costs and earns a 33⅓ % fee ($50,000). Under the formula:
Total costs and fees: $55,000
Percentage of recovery consumed by costs/fees: 36.7 %
Lien reduction: $60,000 × 36.7 % = $22,020
Amount due on lien: $37,980
Net to client: $57,020
If the numbers still seem unfair, your attorney can petition the Superior Court for a further reduction under § 97-10.2(j).
Helpful Hints
Ask your attorney for a written disbursement sheet before signing the settlement documents.
Request an up-to-date lien statement from the comp carrier so you do not overpay.
Keep copies of all medical bills and comp payments; accuracy matters during lien negotiations.
Consider a Superior Court petition if the lien consumes most of the settlement.
Do not cash the settlement check until both sides sign an agreement allocating the lien payoff.
Need guidance on a North Carolina workers’ compensation lien? Our attorneys routinely negotiate liens and maximize clients’ net recovery. Call us today at 919-313-2737 for a free consultation.
