Usually, yes—if someone other than your employer caused your work injury and you recover money from that person or company, the workers’ compensation carrier may be entitled to reimbursement for benefits it paid. That does not mean every dollar of your settlement goes to the carrier, and it does not mean every charge the carrier lists is recoverable. Before you sign a release or accept an offer, make sure the lien, the settlement terms, and your future benefits are reviewed together.
Why the carrier can seek money from a third-party settlement
Arizona workers’ compensation and a third-party injury claim can exist at the same time. Workers’ compensation benefits are generally connected to your job injury. A third-party claim may arise when a person or business other than your employer negligently caused that injury—for example, after a work-related vehicle crash caused by another driver or an injury caused by a company outside your employer.
Under A.R.S. § 23-1023, you may pursue a civil claim against that negligent third party. The same law gives the workers’ compensation carrier a statutory lien against the recovery for the compensation and medical benefits it paid. In plain English, the carrier may seek reimbursement from the third-party recovery for the qualifying benefits it already provided because of the work injury.
This is why a settlement should not be viewed in isolation. A third-party settlement may affect the workers’ compensation claim, including medical care and lost-wage benefits. Our overview of Arizona workers’ compensation liens explains how the two claims can intersect. For a broader look at who may be responsible outside the workplace, see Arizona third-party work injury claims.
The lien attaches when the third-party case settles. That timing matters: an agreement that looks acceptable before the lien is considered can create a difficult issue once the settlement is ready to close. The carrier does not simply get to take a collection fee for enforcing its lien. The lien itself is not subject to a collection fee.
How repayment is actually calculated
The lien is not a blank check. The carrier’s reimbursement right is tied to medical expenses and indemnity payments, meaning lost-wage payments, that it paid. The amount actually collectable is the total recovery minus the reasonable and necessary expenses actually spent to secure that recovery, including attorney fees.
A simple example from Arizona’s Work Injury Firm’s materials shows why the math matters. Suppose your third-party case settles for $90,000. Your attorney fee is $30,000, and the workers’ compensation lien is $40,000. The settlement is not treated as though the carrier receives the full $40,000 on top of your fee without considering the cost of obtaining the recovery.
| Settlement item | Amount |
|---|---|
| Third-party settlement | $90,000 |
| Attorney fee | −$30,000 |
| Workers’ compensation lien | −$40,000 |
| Client receives | $20,000 |
In that example, you receive $20,000. The carrier then receives a credit for the $20,000 paid to you. That credit can affect how the carrier handles ongoing benefits. It is the carrier’s responsibility to pursue the credit. If the carrier does not pursue it and keeps paying benefits, it cannot later demand repayment from you or your attorney after settlement.
The right calculation depends on the actual recovery, the reasonable and necessary expenses of securing it, and the qualifying payments shown in the lien. An itemized lien is important because labels and totals alone may not show whether every entry is recoverable. You can learn what to ask for in a workers’ compensation lien itemization.
Four things the carrier cannot charge you for
A carrier may have spent money investigating or managing your claim. That does not make every expense part of the reimbursement lien. In Arizona, the carrier is entitled to reimbursement only for medical expenses and indemnity, or lost-wage, payments.
That means the carrier is not entitled to reimbursement for these four categories:
- Legal fees. The carrier’s legal expense is not a recoverable lien item.
- Nurse case management. Charges for nurse case management are not part of the reimbursement the carrier can collect.
- Independent medical examinations, often called IMEs. An IME expense is not recoverable through the lien.
- Surveillance. Surveillance and similar investigative costs are not recoverable lien charges.
Other non-recoverable costs should not be added simply because the carrier incurred them. Ask for the lien in writing and compare it with the benefits actually paid. A careful review may identify a charge that belongs in the carrier’s claim file but not in the amount it can recover from your settlement.
What if the settlement is smaller than the lien?
A settlement below the lien needs special attention. If you plan to settle a third-party claim for less than the carrier’s lien, you must obtain the carrier’s written approval to settle. This is not a step to handle informally over the phone. Preserve the written approval in the claim file before the settlement is completed.
Failing to obtain written approval can lead to significant penalties. At the extreme, it can mean forfeiture of future workers’ compensation benefits, including both medical and indemnity benefits. Arizona appellate decisions have moved away from strict forfeiture over time, but some carriers still assert it. The practical point is straightforward: do not assume a low settlement makes carrier approval unnecessary.
There can also be a question about the employer’s share of fault. In Aitken v. Indus. Comm’n of Ariz., 904 P.2d 456 (Ariz. 1995), the court allowed equitable apportionment—a reduction of the carrier’s lien by the percentage of fault assigned to the employer—when the case went to a jury verdict. Later decisions did not permit a settlement to use a post-settlement summary proceeding designed to place all fault on the employer. Grijalva v. Arizona State Comp. Fund, 912 P.2d 1303 (Ariz. 1996), and Stout v. State Compensation Fund, 3 P.3d 1158 (Ariz. App. 2000), addressed that limitation.
The Arizona Supreme Court later held in Twin City Fire Insurance Co. v. Leija (Ariz. 2017) that an employee who settles a third-party case for less than the third party liability insurance limits may seek a court ruling to reduce the lien for the employer’s comparative fault. The worker’s damages and the employer’s comparative fault must be determined in a fair proceeding. That makes early communication with the carrier and its subrogation counsel more important, especially when settlement discussions start before the available liability coverage is exhausted.
In Weber v. Tucson Elec. Power Co., 47 P.3d 1142 (Ariz. App. 2002), a jury’s damages verdict and comparative-fault finding reduced the carrier’s lien against a settlement with a different defendant by 25 percent. These issues are fact-specific. A lien reduction is not automatic, and it should not be assumed from an employer-fault allegation alone.
Does the carrier get a cut of UM or UIM money?
No. Under Arizona law, uninsured motorist and underinsured motorist proceeds are not lienable under A.R.S. § 23-1023 in the way third-party liability proceeds are. This distinction can be important after a work-related crash, where more than one source of insurance coverage may be involved.
UM and UIM coverage are not the same as a negligent third party’s liability coverage. The settlement documents, releases, coverage source, and lien analysis should clearly distinguish them. Read more about workers’ compensation liens and UM/UIM proceeds in Arizona before treating all insurance money as if it were subject to the same reimbursement rule.
Do not confuse a workers’ compensation lien with a hospital lien. Arizona hospital liens arise under a separate statute, A.R.S. § 33-931. Their limitation and compromise are governed by A.R.S. § 33-937, which considers matters including the patient’s attorney fees and costs and reductions agreed to by other claimants. A hospital lien is a different legal instrument and needs its own review.
What to do when the adjuster will not negotiate
An adjuster’s initial lien figure is not necessarily the final answer. Start by requesting a written, itemized statement that separates medical expenses and indemnity payments from non-recoverable items. Check whether the claimed entries are actually payments the carrier made and whether the settlement calculation includes the reasonable and necessary costs, including attorney fees, used to obtain the recovery.
Next, raise the settlement circumstances early. If the proposed settlement is below the lien, ask for the carrier’s written approval rather than waiting until closing. If employer comparative fault may matter, involve the carrier and subrogation counsel before the case is resolved. The fair-proceeding requirement described in Leija is one reason early involvement can matter.
Keep communications and approval requests in writing. Do not let settlement pressure force a rushed decision about a release, a lien waiver, or the relationship between the settlement and future benefits. If you are being pushed to sign before you understand the terms, review what to do when an insurance company is pushing you to settle.
An Arizona workers’ compensation lawyer can review the itemization, the source of settlement funds, and the proposed settlement language alongside the workers’ compensation file. That review is especially useful when the lien exceeds the settlement, the carrier is asserting non-recoverable charges, or the settlement may affect future medical or lost-wage benefits.
Frequently Asked Questions
Do I have to pay back all of my workers’ comp benefits from my settlement?
Not necessarily. The carrier may seek reimbursement for medical expenses and indemnity, or lost-wage, payments it made. The amount actually collectable is the total recovery minus the reasonable and necessary expenses, including attorney fees, actually spent securing that recovery. The carrier cannot recover legal fees, nurse case management, IMEs, surveillance, or other non-recoverable costs through this lien.
What happens if my third-party settlement is less than the workers’ comp lien?
Get the carrier’s written approval before settling. Without written approval, a below-lien settlement can lead to serious consequences, including a potential loss of future workers’ compensation medical and indemnity benefits. The facts and settlement terms should be reviewed before you sign.
Can workers’ comp take money from my uninsured motorist settlement?
No. UM and UIM proceeds are not lienable under A.R.S. § 23-1023 as third-party liability proceeds are. Because a work-related crash can involve several coverages, it remains important to identify exactly where each settlement dollar comes from.
Does workers’ comp get to add its attorney fees or investigation costs to the lien?
No. The carrier’s reimbursement is limited to medical expenses and indemnity payments. Its legal fees, nurse case management costs, IME costs, surveillance, and other non-recoverable costs are not lien items.
What if my employer was partly at fault for the accident?
Employer fault can matter to a lien analysis. Arizona law recognizes equitable apportionment in certain circumstances. For settlements below third-party liability insurance limits, Leija permits a worker to seek a court ruling that reduces the lien for the employer’s comparative fault when damages and fault are determined in a fair proceeding. It is not automatic, so address the issue early.
Can I settle first and work out the lien afterward?
That approach can create avoidable risk. The lien attaches at settlement, and a settlement below the lien requires the carrier’s written approval. Reviewing the lien and settlement terms before signing gives you a chance to address the amount, exclusions, approval, and any effect on future benefits.
Talk with an Arizona workers’ compensation lawyer before settlement
Arizona’s Work Injury Firm, Snow Carpio & Weekley, PLC, practices workers’ compensation law only. If you have a pending third-party settlement and questions about paying back workers’ comp, contact us for a free consultation at (877) 370-5788. There is no fee unless benefits are secured.