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In Hudson, the Kentucky Supreme Court addressed the issue of whether a settlement existed based upon correspondence between the claimant’s attorney and adjuster.  An ALJ found that there was a settlement.  The Kentucky Workers’ Compensation Board reversed and directed the ALJ to enter an order finding there was no settlement.  A court of appeals affirmed the Board.  Appeal was then taken to the Kentucky Supreme Court.

Based upon review of the correspondence between the parties, the Kentucky Supreme Court held that it was insufficient to “show the existence of a complete settlement agreement.”  According to the Court, the “amount of lump sum proceeds to be allocated to a Medicare Set-Aside Account may have legal and financial consequences for the parties.”  Further, the “allocation is an essential element of a settlement that includes such an account.”  Accordingly, the alleged settlement agreement wasn’t complete “under the circumstances because the parties clearly had not come to terms concerning the portion of the lump sum to be allocated to the Medicare Set-Aside Account.”

This decision demonstrates the necessity of an MSA allocation amount in order for there to be a meeting of the minds.  Since MSAs present important legal and financial consequences to all parties, failure to reach an agreement as to the amount of a set aside prevents the parties from reaching an enforceable settlement. This is important and problematic at the same time.  Often times, MSA allocations aren’t accepted by CMS as submitted.  Frequently the allocations are increased by CMS.  Does this mean that settlement agreements that do not address overages are invalid?  What happens if a valid settlement agreement is reached but CMS doubles the MSA allocation?  Does that render the agreement unenforceable without a provision addressing who pays the overage?  There aren’t any answers at the present time, but with continued litigation of MSA related legal issues we may get more clarity over time.