In re Michael Dufresne's Case2/27/2001
urt order, the net amount of the settlement distributed by the Fund to the employee was $65,864. Now, may the compensation insurer, three years after the original settlement of the third-party action, apply the employee's $65,864 "excess" toward a Hunter offset against additional benefits and expenses paid, and being paid, by the insurer to the employee following the settlement? This issue seems not to have been previously considered by a Massachusetts appellate court.
The point to be made is that the $65,864 in the hands of the employee had been distributed to him by the Fund, and had Wausau, at the time of settlement negotiations, demanded that a cash reserve against the foreseeable need of future benefits be carved out of the gross settlement and distributed to Wausau forthwith, or held in a reserve account for a later take-down by Wausau as the need arose, the request would have been denied out-of-hand. The Fund is prohibited from distributing its funds to an insurer; the distribution would not have been payment of a "covered claim." Ferrari v. Toto, supra, is dispositive on the issue. Thus, the question comes down to whether Wausau, three years after the settlement, is entitled to an offset against Wausau's payment of postsettlement benefits when the basis for the offset is the $65,824 "excess" in the hands of the employee.
We conclude that the answer is in the negative. Since, at the time of the settlement, the employee's future need of benefits was stated to be foreseeable, the "excess" held by the employee would, in an ordinary third-party proceeding, be offset by the compensation insurer against benefits paid after the settlement agreement, just as required by Richard v. Arsenault, supra, and Hunter v. Midwest Coast Transp., Inc., supra. The difficulty in this case is that this is an insolvency case, not an "ordinary third-party proceeding." The settlement fund, including the "excess" held by the employee, came from assets of the Fund, and Ferrari v. Toto is clear that the Fund may not pay out its assets "if the ultimate beneficiary is an insurance company." 9 Mass. App. Ct. at 486. It matters not, in our opinion, that the hiatus between the settlement and the later need for additional benefits was three years. The required resolution of the double recovery problem in this insolvency case was the reduction in the limitation in the liability of the Fund for the anticipated payments by the insurer which the parties foresaw. (See note 8, infra, as to present law). This, too, was made clear enough in Ferrari v. Toto, supra at 484: "We hold that the liability of the Fund is reduced by so much as the claimant has received on account of the same injury from workmen's compensation insurance." Whether, had the proper procedure been followed, the employee would have ended up with any excess is entirely conjectural on this record, but that is of no consequence. Wausau failed to make that demand -- probably for an understandable reason: it had nothing to gain by the reduction in the Fund's availability nor by the reduction of the monies distributable to the employee. Wausau stands in no better position today; Wausau, as the compensation insurer, has no claim on monies distributed by the Fund in 1991 to the injured employee. As between Wausau and the Fund, "the loss must be absorbed by the workmen's compensation insurer." Ferrari v. Toto, 383 Mass. at 38. In other words, "the design of the Fund to indemnify injured persons, but not the insurance industry." Ferrari v. Toto, 9 Mass. App. Ct. at 487. Wausau's argument that the necessary avoidance of double recovery by the employee requires judgment in its favor comes to nothing.
Wausau also relies on Gaeta v. National Fire Ins. Co. of Hartfo
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