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A lump sum settlement (LSS) is settling a claim for an amount agreed to by the employer and the claimant. In state fund claims, the Bureau of Workers Compensation pays the settlement amount to the claimant, charges that amount to the employer’s premium rate calculations, and eliminates all reserves.

There are usually two reasons why employers want to settle claims. One reason is to stop the time and money it takes to continue to fight a claim. The other reason is to lower the claim’s impact on premium rates by trading a fixed compensation settlement amount for the unpredictable (and often excessive) reserves.

It is extremely important to negotiate a settlement that accurately reflects the value of the claim, but that will not damage the employer’s premium rates any more than it already has. The BWC has to approve the settlement, although if both parties agree, the BWC usually does not dispute it.

For some claims, it helps to negotiate a cash settlement to be paid by the employer outside of the BWC. The claimant gets more money, but the total settlement is not so high that it eliminates the value to the employer. For example, an employee claimed a lumbar strain which was disallowed. But the employee filed to court, and the Attorney General offered $10,000 to settle the claim. The employer offered to pay $5,000 directly to the employee, and so the claim was settled for amount in the experience that enabled the employer to stay in group rating.

A claim should not be settled when the claimant still works for the company. First, the claimant may injure the same body parts again, and it is better for premium rates to not have a new claim filed. Second, it is unwise to teach employees that there can be cash money to be made for filing workers’ compensation claims.

Who do you need to help with settlements? First and foremost, you need a good actuarial TPA to determine the maximum settlement amount. The TPA should be able to explain the impact on your premium rates at various settlement levels.

If the claim is in court, or has been contentious, you should have an attorney who specializes in workers’ compensation to help with options concerning getting a release from all other liabilities and/or employment.

If you are negotiating to settle a workers’ compensation claim, you should file the Settlement Agreement by 4 PM on Thursday, October 15, 2009. The claimant, his/her attorney, and the employer (or employer’s attorney or TPA) all have to sign it, and the settlement amount must be agreed upon. The BWC will eliminate any reserves for that claim, which should decrease its impact on your workers’ compensation premiums starting 7/1/2010.

If the BWC has paid or been authorized to pay the settlement amount on or before 12/31/2009, the settlement will be included in the published rate letter that will be mailed in July 2010.

If the payment authorization date is after 12/31/2009, the settlement will be included in the rate calculations, but not in the published rate letter in July 2010.

If the settlement agreement is filed after 10/15/09, the settlement money has to be paid on or before 12/31/09 for the reserves to be eliminated for 7/1/2010 policy year.

If the settlement is filed after 10/15/2009 and the BWC doesn’t pay the settlement money until after 12/31/09, the reserves will be included in the premium rate calculations for the 7/1/2010 policy year.

If the settlement is through the attorney general and/or the court, the settlement must be paid by the BWC before 12/31/09.

Why are these dates important? First, you want your workers’ compensation premiums to be as low as possible. Second, group rating sponsors will not even consider any company that has a maximum value claim. If you can show that the claim has been settled and will have total claims costs that are less than the maximum value, then you should get several group rating offers. It is easier to get group rating offers with maximum discounts when the sponsors know that the claim is recognized as settled by the BWC.

For an explanation of any terms that you don’t understand, go to www.actucomp-ltd.com and click on Definitions.