Kentucky Structured Settlement Protection Act Applies To Tort Settlements, Not Workers’ Compensation Settlements, Says Court

Kentucky Structured Settlement Protection Act Applies To Tort Settlements, Not Workers’ Compensation Settlements, Says Court

The Kentucky Supreme Court has rejected an attempt to transfer the rights to future workers’ compensation settlement payments.

American Gen. Life Ins. Co. v. DRB Capital, LLC, 2017-SC-000329-DG, 2018 Ky. LEXIS 535 (Ky. Dec. 13, 2018), is the citation for the Kentucky highest court’s opinion in which it held that the Kentucky Structured Settlement Protection Act did not apply to workers’ compensation settlement payments, and therefore the trial court did not have authority to approve a transfer of such payments under the SSPA.

Worker Ray Thomas settled his work-related injury by way of a workers’ compensation structured settlement in 2015, and less than a year later, entered into a proposed agreement with a factoring company, DRB Capital, LLC (DRB), whereby he would sell future payments with a face value of more than $77,000 in exchange for an immediate payment of $35,000 from DRB.  DRB filed a petition, invoking the Kentucky Structured Settlement Protection Act, Kentucky Revised Statutes §§ 454.430 through 454.435 (Kentucky SSPA), which provides that such a transaction is ineffective unless it receives judicial approval under the SSPA.  A Kentucky Circuit Court judge issued an order approving the transfer, and the annuity issuer and structured settlement obligor appealed to the Kentucky intermediate appellate court, which affirmed the trial court’s ruling.  The issuer and obligor then appealed to the Kentucky Supreme Court, which this month reversed.

Much of the Kentucky Supreme Court’s opinion addressed the contactual anti-assignment provisions in the settlement agreement, qualified assignment agreement, and annuity contract.  For more about that discussion, see this post, here.

But another important determination of the Kentucky Supreme Court was that the Kentucky SSPA did not apply to this matter, because by its terms the SSPA applies only to tort settlements, and not to workers’ compensation settlements.

The Court pointed out that workers’ compensation law takes such matters out of the realm of tort.

This Court has recognized that the Workers’ Compensation Act is legislation resulting from a compromise between employers and employees. . . .  ‘Workers agree to forego common law remedies in exchange for statutory benefits awarded without regard to fault.  Employers agree to pay such benefits and to forego common law defenses in exchange for immunity from tort liability.’ . .  .  One of the purposes of the Workers’ Compensation Act is ‘to extend benefits to employees without the need to prove fault, while protecting employers from tort liability.’ . . .

The Kentucky Supreme Court also reviewed the definitions section of the Kentucky SSPA, which provides that a “Settled claim” is “the original tort claim resolved by a structured settlement” and that a “Structured settlement” is “an arrangement for periodic payment of damages for personal injuries established by settlement or judgment in resolution of a tort claim”.

The Court indicated that the use of the word “tort” was significant:

By its plain language, the [Kentucky SSPA] applies only to the transfer of payment rights under a tort settlement reached while the plaintiff’s claim was pending in Kentucky courts.  The definition for structured settlement refers to periodic payment of damages for personal injuries established in resolution of a ‘tort claim.’  An employee who receives workers’ compensation through settlement or an award has not resolved a tort claim, but rather has pursued a statutory recovery.

The Court rejected the argument that Kentucky law conflates workers’ compensation claims and tort claims.  “[I]n the realm of work-related injuries what ordinarily would be considered a tort claim is instead completely removed from tort and placed into a specially designed statutory framework — the Workers’ Compensation Act,” said the Court.  “Any tort claim the employee may have had against his employer is extinguished by workers’ compensation.”

The legislative history, which not dispositive, also supports the conclusion that the SSPA does not apply to workers’ compensation settlements, because the “legislature originally contemplated the inclusion of workers’ compensation settlements in the [Kentucky SSPA], but ultimately removed those settlements from the statute.”

Since a workers’ compensation settlement is outside the scope of the SSPA, the trial court in the DRB case was without authority to approve a transfer.  “[B]ased on clear statutory language, the [Kentucky SSPA] applies only to the transfer of payment rights under a tort settlement, not the transfer of payment rights under workers’ compensation settlements,” said the Kentucky Supreme Court, adding that “[t]o the extent Kentucky Employees’ Mutual Insurance v. Novation Capital, LLC, [361 S.W.3d 320 (Ky. App. 2011),] holds otherwise it is hereby overruled.”

The Kentucky Supreme Court’s ruling aligns with the other state appellate opinion on this topic, In Re Stratcap Invs., Inc. 796 N.E.2d 73 (Ohio Ct. App. 2003), which held that the Ohio Structured Settlement Protection Act applied only to tort claims, and therefore was inapplicable to a proposed transfer of structured settlement payments under a workers’ compensation settlement.

For more about the DRB opinion, see this blog’s prior posts here and here.  The Kentucky Supreme Court’s full opinion is available here.

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