Many cases vetted by our firm are referred to us by fellow members of our legal community — attorneys and staff who do not handle workers’ compensation claims as a matter of course. Often an intake staff member, as soon as they hear that a person was injured while on the job, will refer that person to our firm.
That instinct is usually right. But it is important to note that these referrals will sometimes involve a person who was injured by a negligent third party while in the course of their employment — and that changes the analysis considerably.
This page is our standing resource on Arizona lien practice for referring firms. It covers the automatic statutory lien under A.R.S. § 23-1023, the one-year deadline that governs your client’s third-party claim, how to obtain and challenge a lien itemization, and how settlement credits actually work.
How Personal Injury Attorneys Can Handle On-the-Job Injury Referrals and Third-Party Claims
When we receive a work injury referral, we vet the workers’ compensation claim and return the third-party claim to whoever sent the person to us. That division of labor is deliberate: your firm keeps the civil case, we carry the compensation claim, and the client is not asked to coordinate two tracks on their own.
The reason the distinction matters is that a single injury can produce two entirely separate claims with two entirely different sets of rules, deadlines, and recovery limits.
Identifying Overlapping Workers’ Compensation and Third-Party Negligence Claims
The classic example we like to give is a FedEx driver who is negligently rear-ended by an ordinary driver. That driver has a workers’ compensation claim against the employer’s carrier, and also a third-party claim against the negligent driver. Both are viable at the same time.
The same pattern appears in many other settings. Construction workers injured by another contractor’s equipment, delivery drivers struck by a third-party motorist, employees injured by a defective product, and workers hurt on premises controlled by someone other than the employer all raise the question. For clients who want the plain-English version of how these claims fit together, see our overview of third-party work injury claims in Arizona.
Workers’ Compensation Liens in Arizona: What Personal Injury Lawyers Need to Know
There is an entire seminar put on by the Arizona Association for Justice regarding liens, and we sometimes present at it. This page is meant to be a resource for you throughout the rest of the year.
If the FedEx driver discussed above pursued a third-party claim, there would be an automatic, statutory lien against the recovery on that claim — whether the case resolved by settlement or by judgment. That attachment occurs as a result of A.R.S. § 23-1023.
Arizona Revised Statute § 23-1023 and Automatic Workers’ Compensation Liens
“If the employee proceeds against [the negligent third party] compensation and medical, surgical and hospital benefits shall be paid as provided in this chapter and the insurance carrier or other personal liable to pay the claim shall have lien on the amount actually collectable from the other person to the extent of such compensation and medical, surgical and hospital benefits paid. This lien shall not be subject to a collection fee. The amount actually collectable shall be the total recovery less the reasonable and necessary expenses including attorneys fees.”
Three features of that language drive most of the practical disputes you will encounter: the lien arises automatically, it is measured by benefits actually paid, and it is expressly not subject to a collection fee.
The One-Year Deadline That Can Cost Your Client a Third-Party Claim
One of the most important things to note is that the injured worker has only one year to pursue the third-party negligence claim. If the claim is not pursued during that period, the right to pursue it is automatically assigned to the workers’ compensation insurance carrier instead of your client.
This is critical to calendar, because it differs from the standard two-year statute of limitations most personal injury attorneys track by default. A firm operating on autopilot will calendar the wrong date. For a full breakdown of how the clock runs and what a missed date actually costs, see our analysis of the one-year deadline for third-party claims in Arizona.
Reassignment of Third-Party Claims After the One-Year Workers’ Compensation Deadline
As the one-year mark approaches, you can obtain a written reassignment of the claim from the carrier, effectively restoring the right to your client and preserving the additional year.
Most carriers would rather sign a reassignment than litigate the third-party case themselves, so the request is often productive — but it must be made and documented promptly. For the mechanics, what a valid reassignment should contain, and the traps around partial reassignments and reservations of rights, see our guide to getting a third-party claim reassigned from the carrier.
How to Request, Review, and Challenge a Workers’ Compensation Lien Itemization
As settlement approaches — whether in the first or second year — you will want to confirm the workers’ compensation lien amount. This lien is automatic. The amount is obtained by requesting an itemization of medical and indemnity payments from the workers’ compensation insurance adjuster.
For the full request process, the three documents worth requesting rather than one, and a line-by-line list of charges you can challenge, see how to request and read a lien itemization and our process for reducing and negotiating a workers’ comp lien.
What Expenses Are Reimbursable in a Workers’ Compensation Lien
The carrier is only entitled to reimbursement for medical expenses and lost wage payments. Carefully review the itemization for improper charges such as legal fees, nurse case management, IMEs, or other non-recoverable costs.
That list is the most productive place to start, because padded itemizations are common and the corrections are objective rather than argumentative. Our lien reduction process sets out the four levers we work through, beginning with improper charges.
Can the Lien Be Reduced for the Employer’s Own Fault?
Arizona permits equitable apportionment — reduction of the carrier’s lien by the percentage of fault assigned to the employer. Under Aitken v. Indus. Comm’n of Ariz., 904 P.2d 456 (Ariz. 1995), that remedy was originally limited to cases tried to a jury verdict, which gave carriers a comfortable window to monitor litigation.
That changed with Twin City Fire Insurance Co. v. Leija (Ariz. 2017), where the Arizona Supreme Court held for the first time that a worker who settles a third-party case for less than the limits of third-party liability insurance may seek a court ruling reducing the carrier’s lien to account for the employer’s comparative fault, provided damages and comparative fault are determined in a fair proceeding. The practical consequence for referring firms is that the carrier’s early involvement now matters much more than it once did. Our third-party work injury claims page covers this ground in more detail.
When a Workers’ Compensation Lien Attaches and How Settlement Credits Work
With a proper itemization in hand, you can move toward settlement with confidence. A common question is when the lien actually attaches. The lien attaches at the time of settlement.
For example, if a case settles for $90,000, the attorney fee is $30,000, and the workers’ compensation lien is $40,000, the client receives $20,000. The carrier then receives a credit for the $20,000 paid to the client.
That credit mechanism — rather than an immediate cash demand — is the part clients most often misunderstand. For the client-facing explanation, see whether workers’ comp has to be paid back from a settlement.
Protecting Personal Injury Attorneys From Post-Settlement Lien Claims
It is the workers’ compensation carrier’s responsibility to pursue this credit. If the carrier fails to do so and continues paying benefits, it cannot later demand repayment from the attorney or client after settlement. We have seen such attempts fail.
The scene is more complicated when a medical provider also asserts a claim against the same recovery, because hospital liens arise under a completely separate statute. For how the two instruments interact, see hospital and medical liens in Arizona.
UM and UIM Recoveries Are Not Subject to Workers’ Compensation Liens
In many cases the recovery includes both third-party insurance proceeds and UM/UIM benefits. UM/UIM payouts are not lienable under A.R.S. § 23-1023, unlike proceeds recovered from a negligent third party’s liability coverage.
Because the source of a recovery determines whether the lien reaches it, the coverage source should be identified before funds are distributed. For the full analysis, see whether workers’ comp can take your UM or UIM proceeds.
A Trusted Workers’ Compensation Resource for Arizona Personal Injury Lawyers
Workers’ compensation liens are complicated, and mistakes are costly — for your client and for your firm’s fee. If your client has a work injury with a potential third-party case, a focused compensation review can help your firm plan the next step.
If you would like us to provide lunch-and-learn CLE training for your firm, or to serve as an ongoing resource by email, see refer or co-counsel a work injury case for details and contact information.
Nick Wearne – Nick@workinjuryaz.com
Brian – Brian@workinjuryaz.com
Frequently Asked Questions
What is a workers’ compensation lien in Arizona?
When a work injury is caused by a negligent third party rather than the employer, the injured worker may pursue a civil claim against that third party. Under A.R.S. § 23-1023, the workers’ compensation carrier then holds a statutory lien against that recovery, to the extent of the compensation and medical benefits it paid.
When does a workers’ compensation lien attach?
The lien attaches at the time of settlement. Once a third-party recovery is obtained, the carrier is entitled to reimbursement for the medical and indemnity benefits it paid, reduced by the reasonable and necessary expenses, including attorney fees, actually expended in securing that recovery.
How do I request a lien itemization from the carrier?
Request an itemization of medical and indemnity payments from the workers’ compensation adjuster. Review it for charges that are not recoverable — legal fees, nurse case management, IMEs, surveillance, and collection fees — and ask for a corrected ledger and a revised payoff figure in writing.
Can the lien be reduced for the employer’s fault?
Arizona permits equitable apportionment under Aitken, and since Twin City Fire Insurance Co. v. Leija (Ariz. 2017) that reduction may be sought even where the case settled, so long as damages and comparative fault are determined in a fair proceeding.
Is UM or UIM subject to the workers’ compensation lien?
No. Uninsured and underinsured motorist proceeds are not lienable under A.R.S. § 23-1023. Because the source of a recovery matters, identify the coverage source and confirm the controlling authority before distributing settlement funds.
What happens if the third-party settlement is less than the lien?
The worker must obtain the carrier’s written approval before settling. Failing to do so can trigger significant penalties, at the extreme forfeiture of future workers’ compensation benefits. Arizona appellate courts have moved away from strict forfeiture, but some carriers still assert it.
Talk With Our Arizona Workers’ Compensation Team
If your client was injured on the job and there is a potential third-party claim, we are glad to review the compensation side and coordinate with your firm. Call (877) 370-5788 or contact Arizona’s Work Injury Firm — consultations on work injury referrals are free, and we are available as a reference on Arizona lien practice year-round.
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