Parker, Kern, Nard & Wenzel
Legal Updates


The Pitfalls of the Hold Harmless

By
Darren Van Doren

Workers’ Compensation Judges typically will allow medical liens to go unresolved at the time of settlement so long as the applicant is held harmless from medical liens. The WCAB favors such an arrangement in order expedite resolution of the case in chief. In fact, in the case of Firestone Tire and Rubber Company v. W.C.A.B (Kanigowski) (1986) 51 CCC 12, the WCAB set aside an Order Approving Compromise and Release where it was unclear whether the applicant was held harmless from a medical lien or the lien claimant was settled around. Indeed, when liens remain outstanding it is very difficult to obtain approval of a settlement from the WCAB without agreeing to hold the applicant harmless.

Also, in the very recent case of Manual Barajas v. F&H Cold Storage (ADJ6559495), the WCAB allowed full recovery for a medical service lien outside defendant's medical provider network. Although the Compromise and Release documents themselves did not have a hold harmless language, the Order used by the WCJ stated "Defendant is ordered to pay, adjust or litigate and hold Applicant harmless from all industrial liens." Although WCJ's inclusion of hold harmless provision in Order Approving the C&R was improper because it went beyond scope of C&R Agreement, the WCAB found that defendant was bound by hold harmless agreement and obligated to pay lien, solely due to its failure to seek timely reconsideration of the Order Approving the C&R.

Let’s assume that a settlement of the applicant’s accepted case has been reached, the employer agreed to "pay, adjust, or litigate" medical treatment liens, and the applicant was held harmless before the WCAB only. Now assume that a lien is filed within the requisite limitations period. The lien is denied based on the fact the provider was not a member of the employer’s Medical Provider Network (MPN). In other words, assume the applicant was held harmless and the MPN defense is solid.

Can the lien claimant use the hold harmless agreement to obtain reimbursement from the employer in this situation? Lien claimants are arguing for reimbursement in this scenario and there are some Workers’ Compensation Judges indicating the answer is YES.

A hold harmless agreement operates to place the employer in the shoes of the applicant and assume any liability the applicant may have, subject to the defenses available to the applicant. Courts have held such an agreement is contractual in nature whereby the employer is in the position of a general obligor.

The reasoning in support of reimbursement is that although the employer successfully asserted the MPN defense (and therefore has no liability as the employer), the lien claimant still has rights against the applicant. When the lien claimant asserts those rights against the applicant, the hold harmless agreement places the employer in the applicant’s shoes. Therefore, the employer must pay.

On the other hand, in cases where a hold harmless agreement already exists, this conclusion would have the practical effect allowing the applicant and non-MPN providers to completely frustrate the purpose of MPNs. It also conflicts with cases that hold where an employer has provided proper notice to the applicant regarding the MPN there is no liability as the treatment is considered self-procured. Of course, a likely response to this argument is the employer assumed the risk by entering into the hold harmless agreement in the first place.

This issue has not been squarely addressed by the courts. In the meantime, it is best to know whether an MPN dispute exists before the case in chief is settled. In some instances this knowledge may be impossible; such as in a constructive lien setting. Will Workers’ Compensation Judges approve settlements where a hold harmless agreement contain a self-destruct clause for present or future MPN disputes? If not, MPN disputes will change the settlement landscape.