Court Refuses to Allow Offset of Temporary Total Disability Benefits by Short-Term Disability

The Minnesota Workers’ Compensation Court of Appeals recently reversed a compensation judge’s determination that an employer and insurer were entitled to offset temporary total disability benefits by the short-term disability benefits paid to the employee.

In Claude Bruton v. Smithfield Foods, Inc., Bruton fell and dislocated his right shoulder and sustained facial lacerations while working for the employer Smithfield Foods on August 25, 2016. Smithfield carries a workers’ compensation policy through Safety National Casualty Corporations that is administered by ESIS, Inc. The policy requires Smithfield to fund a two million dollar deductible for each workers’ compensation claim. Despite the high deductible, Smithfield is not self-insured.

After a primary liability denial, Smithfield authorized payment to Bruton through John Morrell Food Group Non-Union Hourly Employees Short-Term Disability Policy (“JMFG”). The policy paid Bruton 80 percent wage replacement. Beyond the short-term disability benefits, Bruton received sick leave and vacation pay from Smithfield.

Smithfield and ESIS then admitted primary liability, along with admitting Bruton was temporarily totally disabled as of August 26, 2016. Smithfield paid temporary total disability benefits from March 27, 2017 through the date of the hearing on August 4, 2017. They did not pay temporary total disability for the time period of August 26, 2016 through March 26, 2017.

ESIS paid Bruton $636.52, which represented the difference in tax treatment between the short-term disability benefits paid under the JMFG policy and the temporary total disability benefits owned from August 26, 2016, through March 26, 2017, had such benefits been paid.  Smithfield and ESIS asserted their right to an offset, reducing temporary total disability by the short-term disability payments and the sick and vacation benefits, already made to Bruton during that time frame.

The compensation judge found Smithfield and ESIS were entitled to offset the temporary total disability by the amount of the short-term disability benefits paid to Bruton under the JMFG policy, but were not entitled to offset Bruton’s vacation or sick leave pay. Bruton appealed the offset of the short-term disability benefits.

The Workers’ Compensation Act provides two routes by which an employer and its insurer may seek to reduce an injured employee’s benefits by the amount of other benefits the employee received. The employer or its insurer may seek an offset from payment of full wages under a wage continuation program prescribed in Minn. Stat. § 176.221, subd. 9, or the employer and its insurer may seek an offset as a result of an asserted right of intervention under Minn. Stat. § 176.361.

First, the Court noted the short-term disability payments made under the JMFG policy, even though funded by Smithfield, are not wage continuation benefits under the Act. They rejected Smithfield and ESIS’s argument that because the employer and JMFG are “the same entity” that it is somehow “just like” wage continuation.

Second, the Court agreed with Smithfield and ESIS’s argument that it is not necessary for an employer to intervene or to be named as an intervenor when it is already a party to the action. However, the Court noted it was not clear from the record that Smithfield was the same entity as JMFG. Nowhere in the JMFG policy is Smithfield mentioned. As a result, because neither of the two avenues available for Smithfield and ESIS to reduce the temporary total disability payments apply, the Court held no offset was allowable by law.

The Workers’ Compensation Court of Appeals further noted JMFG did not assert a right to reimbursement as if it were an intervenor. The JMFG policy forbids payments when there is entitlement to workers’ compensation benefits to an employee, but there is no language allowing it to collect any overpaid short-term disability benefits. The Court noted the compensation judge failed to address or analyze the contractual terms of the JMFG policy and instead simply relied on public policy disfavoring double recoveries.

Because there is no evidence to support Smithfield and JMFG to be the same entity, and because JMFG did not intervene, the Workers’ Compensation Court of Appeals reversed the compensation judge’s determination that Smithfield and ESIS are entitled to offset the owed temporary total disability benefits by the short-term disability benefits paid to Bruton. The Court noted that even if Smithfield and JMFG were the same entity, thereby placing JMFG in the role of an intervenor, because the JMFG policy gives it no right to reimbursement, the compensation judge erred in applying equitable principles to allow an offset.

This matter is currently being appealed to the Minnesota Supreme Court.

Please click here to download a copy of the Court’s decision.

If you have any questions, please contact Lauren Harvey at lnh@mccollumlaw.com.

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