The Importance of the Settlement Agreement

Commentary, Medicare Set-Aside Blog, Medicare Set-Asides, MSP Litigation on May 5, 2014
Posted by Jennifer Jordan, JD, MSCC

I lecture often about the importance of settlement agreements in litigation involving MSAs. The one factor that you can consistently find throughout the limited body of case law involving MSAs is judicial emphasis on a meeting of the minds, usually as evidenced by the memorialization of the agreement among the parties in the settlement contract. MSAs are a risk management tool and not a legal requirement, therefore when parties agree to create one, they are governed by contract and nothing more. Because of that, one of the most important aspects of an MSA is the manner in which it appears in the settlement agreement.

To date, few judges have looked outside the express language in a settlement agreement to decide whether to enforce a settlement or not. In just a few, the court looked at correspondences to find the intent of the parties, but for the most part, the contract language is key. But few opinions have emphasized this point as well as the appellate decision in Paluch v. UPS. One can’t wait to dive into an opinion that begins with an introduction such as:

Sloppy, imprecise drafting can lead to legal wrangling. A single word in reciting the terms of a settlement, for example, can bring about intense litigation over interpretation. In drafting settlement agreements, lawyers should, quoting novelist Vladimir Nabokov’s advice to writers, “have the precision of a poet,” leaving out the poet’s creativity, originality or artistic flourishes. Had the lawyers here been more studious and careful in choosing a single word (“plus”), this case undoubtedly would not have been necessary. 


The settlement language states: “Respondent agrees to pay and Petitioner agrees to accept $400,000.00 in a lump sum plus payment of a Medicare Set-Aside (MSA), in annuity form, in full and final settlement of all claims for benefits past, present and future based on injuries arising out of an accident on or about July 11, 2006.”

The next paragraph contains a chart that states:

Total Amount of Settlement $400,000.00
Deduction: Attorney’s Fees $43,600.00 reduced from $80,000.00
Deduction: Medical reports, X-rays $2,611.84
Deduction: Other (explain) $[blank]
Amount employee will receive $353,788.16


Of course Claimant feels he should get $400,000 in addition to the MSA and UPS feels the MSA was part of the $400,000. Because the fist sentence supports Claimant and the later paragraph supports UPS, the agreement contains conflicting clauses. Because the four corners of the agreement are ambiguous, the court looked to extrinsic evidence. Claimant used a Social Security rider to suggest that because his net proceeds were used to calculate his SSDI off-set, that the MSA could not have been included because future medical compensation wouldn’t count towards the off-set. The court ultimately determined that the ambiguous wording was sufficient for an evidentiary hearing and that it was improper of the trial court to dismiss, therefore the case was remanded for further proceedings.

As an aside, there is obviously more going on here than the opinion alludes to. The very last paragraph suggest that CMS “denied the MSA as insufficient” and that claimant felt that should change the interpretation of the agreement, which UPS denies. The court refuses to to consider the allegation given it relies on facts outside the record so we don’t know what happened. If in fact CMS did “deny” the MSA, the agreement actually states that “[s]hould CMS determine the MSA to be insufficient, the Respondent reserves the right to appeal the decision, and Respondent agrees to either modify the MSA consistent with CMS recommendations or elect to allow Petitioner to retain his medical rights under Section 8(a).” If UPS allowed meds to be left open rather than fund CMS’ counter, this all could be part of Claimant trying to get UPS to fund the counter higher. It would be interesting to know the full story here.

Regardless, the point remains the same. The most important part of any settlement involving an MSA should be the manner in which it is negotiated and memorialized. Forget about CMS and its many memos and focus on state laws governing settlements. Treating MSAs as anything more than a future medical allocation in any other workers’ compensation settlement may lead just to trouble.

2014 IL App (1st) 130621; 2014 Ill. App. LEXIS 283
March 26, 2014, Opinion Filed