Disclaimer: This article is for informational purposes only and does not constitute legal advice.
Detailed Answer
What is a Workers’ Compensation Lien?
In Maryland, when your employer’s workers’ compensation insurer pays benefits for a work-related injury and you later recover from a third party (for example, a negligent motorist), the insurer has a legal right to reimbursement. That right is called a lien or subrogation interest. Under Maryland law, the lien covers the total benefits paid, but the amount the insurer can recover is subject to a statutory reduction for attorney fees and litigation costs.
Statutory Framework
Maryland’s subrogation rules appear in Md. Code, Labor & Employment § 9-610. Key points include:
- Scope of the lien: The insurer may recoup only the benefits it paid.
- Reduction for fees and costs: The lien reduces proportionally to reflect the attorney fees and expenses incurred in obtaining the third-party recovery.
- Judicial oversight: Courts review the reasonableness of fees and the allocation formula.
How Courts Calculate the Net Lien
Courts typically use a two-step approach:
- Determine the gross third-party recovery (settlement or verdict).
- Apply a proportional reduction so that the insurer shares the litigation burden. The formula is: lien amount = total benefits paid × (net recovery ÷ gross recovery), where net recovery = gross recovery – attorney fees – costs.
Hypothetical Example
• You settle with a negligent motorist for $100,000.
• Your attorney’s fees and case costs total $30,000.
• Your workers’ compensation carrier paid you $20,000 in benefits.
Using the formula:
Net recovery = $100,000 – $30,000 = $70,000
Lien amount = $20,000 × ($70,000 ÷ $100,000) = $14,000
Your final payout = $100,000 – $30,000 – $14,000 = $56,000
Practical Impact on Your Recovery
Workers’ compensation liens reduce the amount you keep from a personal injury recovery. You bear litigation fees first, then reimburse the carrier a proportionate share. Understanding the formula helps you estimate net proceeds and negotiate effectively.
Helpful Hints
- Get a detailed lien statement from the insurer early in negotiations.
- Review your fee agreement to see how fees apply to third-party actions.
- Ask your attorney to run the lien-reduction formula at each settlement stage.
- Negotiate reductions in the lien if you can show disproportionate costs.
- Keep clear records of all expenses tied to the third-party claim.