In 1999, the employee filed a claim for workers' compensation benefits in the Fayette County Circuit Court, which found that the employee was 100% permanently and totally disabled as a result of an occupational disease he had contracted from his employment. The employee also pursued a claim against third parties for the same occupational disease. The employee and the third parties negotiated a confidential settlement. Under the Alabama Workers' Compensation Act, the employer had a right to credit the payment from the third parties against its liability for workers' compensation benefits.
In November 2008, the employer and employee negotiated a settlement of the employer's rights. In January 2009, the employer and employee petitioned the circuit court to approve their settlement. On February 27, 2009, the court approved the settlement, which provided (among other things) that a Medicare set-aside trust (MSAT) was to be set up. The employer was to pay no more than $65,000 into this trust; the employee was pay the balance so that the entire fund totaled $83,936.17. By setting up the fund, the employer was relieved of paying any future medical expenses of the employee.
Five months later, the employee filed a petition with the circuit court, complaining that an MSAT had not been set up as agreed. The employer responded that it was willing to pay $65,000 toward the MSAT as it had agreed, but that Centers for Medicare and Medicaid Services had informed the parties that the total cost of the MSAT was greater than the $83,936.17 originally estimated at the time the settlement was agreed to. The employer maintained that the employee was obligated to pay the difference and the employee was repudiating the settlement agreement. The employer petitioned the court to order the employee to pay all amounts necessary to establish the MSAT and that the employee had agreed to pay anything more than $65,000 necessary to set up the MSAT. The employee countered that the employee had agreed to the settlement because the employer represented that he would only have to pay $18,963.17 to establish the MSAT.
The circuit court ruled that the employer had to pay additional money to establish the MSAT and had to continue to pay the employee's medical expenses until the MSAT was established.
The employer appealed to Alabama Court of Civil Appeals, which ruled that the settlement was governed by the court's judgment in approving the settlement, not by what the parties may have agreed to before the judgment was entered. By the terms of that judgment, the employer was to pay $65,000 to establish the MSAT and the employee was pay the balance. Nothing in the judgment provided what happened if the MSAT cost more than the amount stated in the judgment. (The court's judgment incorporated the terms of the settlement reached by the parties, and that agreement likewise did not address this issue.) Therefore, the parties were left at an impasse. The appeals court ruled that employer had to continue to pay the medical expenses of the employee, but that the employer retained its right of subrogation against the amount the employee recovered from the other parties. See Arvinmeritor, Inc. v. Johnson, decided on February 25, 2011.
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