Pennsylvania Court Determines That Federal Workers’ Compensation Statute Prohibits Assignment of Structured Settlement Payments

Pennsylvania Court Determines That Federal Workers’ Compensation Statute Prohibits Assignment of Structured Settlement Payments

Do workers’ compensation laws prohibit secondary market transactions involving structured settlement payments?  Where the structured settlement resolved a workers’ compensation matter, the general rule is that such transactions would contravene the prohibition against assignment of compensation that appear in the vast majority of state workers’ compensation laws.

Factoring companies sometimes argue that there are exceptions to the general rule that allow such transactions in certain circumstances or under the laws of particular jurisdictions.

A Pensylvania court just rejected that line of reasoning, in a case involving a federal workers’ compensation statute.  And the Pennsylvania court’s opinion not only reversed the lower court ruling that would have let the transaction proceed, but also turned away arguments based on a decades-old federal court ruling concerning the same federal workers’ compensation law.  That 1995 ruling is one that factoring companies for years have sometimes pointed to as justification to proceed with transactions involving certain workers’ compensation settlements – but it is one which state courts have now repeatedly declined to follow.

The holding of the Pennsylvania court in  In re Dwyer, No. 149 WDA 2016, 2017 Pa. Super. Unpub. LEXIS 322 (Pa. Super. Ct. Jan. 27, 2017), is that the proposed transfer of payment rights contravened the prohibition against assignment of compensation that is part of the federal Longshore and Harbor Workers’ Compensation Act (the LHWCA).

The dispute arose from a settlement of a LHWCA claim.  The payee in Dwyer became entitled to receive structured settlement payments after he filed a claim under the LHWCA for compensation for workplace injuries that he suffered in Afghanistan.  In 2014, in conjunction with the requirements of the LHWCA, the U.S. Department of Labor approved a settlement of Dwyer’s LWHCA action.  A year later, the payee entered into a proposed transaction to sell his payment rights to a factoring company, DRB Capital, LLC.  That transaction, and those like it, are subject to the terms of state structured settlement protection acts, which provide that transfers of structured settlement payment rights can become legally effective only when they meet certain specified statutory requirements, including that they are approved by a court.  DRB Capital filed a petition seeking trial court approval of the proposed transaction pursuant to the Pennsylvania Structured Settlement Protection Act (the Pennsylvania SSPA), 40 Pennsylvania Statutes § 4001 et seq.  The trial court approved the transfer, and the insurer with the payment obligations, National Indemnity Company, appealed, arguing that the transfer contravened the LHWCA and therefore could not receive court approval under the Pennsylvania SSPA, which says that a transfer cannot receive judicial approval if the transfer would contravene applicable law.

The LHWCA includes a provision prohibition assignment of compensation made pursuant to the LHWCA.  That provision reads as follows:

No assignment, release, or commutation of compensation or benefits due or payable under this chapter, except as provided by this chapter, shall be valid, and such compensation and benefits shall be exempt from all claims of creditors and from levy, execution, and attachment or other remedy for recovery or collection of a debt, which exemption may not be waived.

33 U.S.C.A. § 916.

DRB argued that the case was governed by In re Sloma, a 1995 opinion from the federal Eleventh Circuit Court of Appeals.  Sloma, 43 F.3d 637 (11th Cir. 1995), was not a unanimous opinion, with the judges splitting 2-1 to conclude that the LHWCA’s prohibition against assignment of “due and payable” compensation did not apply where, according to the two judges in the majority, the compensation already had been paid to the worker as part of a settlement even if settlement payments were due in the future.

The Dwyer court reviewed Sloma in some detail, as well as the language of the LHWCA, and concluded that the statutory language of the LHWCA controlled, and that, in the case before it, where there was a reinsurance agreement naming the worker as an intended beneficiary of a settlement, the compensation being paid to the worker in the future remained within the scope of the statutory prohibition against assignment.  Said the court:

[W]e must resolve whether the plain language of Section 916 prohibits the assignment of benefits where the employer/insurer entered into a re-insurance agreement with another insurer to pay the structured settlement payments.  In other words, a determination must be made as to whether Dwyer’s claim under the LHWCA was resolved when the Reinsurance Agreement was entered, and whether the settlement payouts are being made to him pursuant to a contract where he is the third party beneficiary.

While the LHWCA does not define ‘due’ or ‘payable,’ we must construe the words according to their common and approved usage. . . .  ‘Due’ is defined as ‘[o]wing or payable.’  BLACK’S LAW DICTIONARY 538 (8th ed. 2004).  ‘Payable is defined as ‘([o]f a sum of money or negotiable instrument) that is being paid.’  Id. at 1165.  Accordingly, the LHWCA prohibits the assignment of any compensation or benefits owed or being paid pursuant to a claim under the LHWCA. . . .  Section 916 places no limitation on the type or method of compensation, whether by an annuity or structured settlement payment, that cannot be assigned.  Moreover, the plain language of Section 916 does not suggest that the anti-assignment clause only applies to future payments. . . .  In fact, the plain language of Section 916 applies to any benefits or compensation, either being paid or owed in the future.

In Dwyer, the court explained that the worker entered into a settlement agreement with his employer and its workers’ compensation insurance carrier arising out of his claim under the LHWCA and that, as part of the settlement agreement, the workers’ compensation insurance carrier entered into a reinsurance agreement with National Indemnity, under which the worker was to receive periodic settlement payments, and, further, the Department of Labor approved the settlement agreement and ordered the parties to pay the future “amounts due in accord with” the settlement agreement.  Thus, said the Dwyer court, the governing agreements “clearly” state that the worker is to receive future payments and, based on the LHWCA’s plain language, the future payments are “due or payable” and fall within the scope of the prohibition against assignment.

In addition, the Dwyer court also said that the structured settlement payments at issue “derive directly from the LHWCA.”  The Department of Labor approved the settlement agreement and, as part of that settlement agreement, the parties expressly agreed to enter into a reinsurance agreement “as the method to pay Dwyer’s weekly payments,” said the court.  The Dwyer court also said that the agreements further explained that the payments derived from the LWHCA: “Contrary to DRB’s assertion that Dwyer’s claim under the LHWCA was finally disposed because his receipt of the structured settlement payments arose out the Reinsurance Agreement, not the LHWCA, the plain language of both the Settlement Agreement and the Reinsurance Agreement state that the payments derive from the settlement of claims arising out of the LHWCA.”

The Dwyer court continued, setting forth reasoning that may be seen as more in line with the dissent in Sloma:

[I]t would be absurd to allow a party, who expressly settled a LHWCA claim, to avoid the anti-assignment clause of the LHWCA merely by engaging in the common practice of purchasing an annuity or having a separate insurance company pay the structured settlement payments. . . .  To utilize the DRB interpretation of Section 916 would effectively render the LHWCA inapplicable, as any form of reinsurance agreement or annuity would be considered a payment of the outstanding claim.  Thus, based upon the Settlement and Reinsurance Agreements, Dwyer’s structured settlement payment rights are a ‘due or payable’ award under the LHWCA, and cannot be assigned pursuant to Section 916.  See 33 U.S.C.A. § 916.

The Dwyer court concluded that the agreement between the worker and DRB is “invalid.”  In addition, because the transfer contravened the LHWCA, the agreement also “violated” the Pennsylvania SSPA.

The full opinion in Dwyer is available here.

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