Key Takeaways
When you hear the word “settlement” related to a workers compensation claim, it might sound complicated or even concerning. But settlement simply means reaching a resolution on an open claim. That could mean closing the file because the injured worker has fully recovered, or for more complex claims, reaching a financial agreement that brings the claim to a close. Understanding when and how settlement works helps you support injured workers while managing claims effectively.
In this episode, MEM Claims Operations Manager Shannon Fox breaks down the work comp settlement process, explaining when settlement makes sense, how it works, and what employers need to know.
What does “settlement” mean in work comp?
In work comp, settlement simply means bringing a claim to a close. Many claims close naturally when the injured worker completes treatment and returns to regular work. “Sometimes settlement just means we’re confirming someone has recovered,” Fox said.
Settlement becomes more relevant when:
- Long-term or permanent injuries reach maximum medical improvement and the condition has stabilized
- Return to work challenges arise because the injured worker can’t return to their previous position or has permanent restrictions
- Disputes or questions arise about compensability, extent of injury, or appropriate treatment
A variety of circumstances can lead to settlement. “We look at settlement when continuing with ongoing benefits isn’t the best path forward,” Fox explained.
The two types of settlements you should know about
Most settlements fall into one of two categories: stipulated or full and final.
Stipulated settlements: Ongoing medical coverage
A stipulated settlement resolves wage loss benefits while keeping medical coverage open. The injured worker receives a lump sum for lost wages or permanent disability but can still access medical care related to the injury. “This works well when someone is back at work but might need future treatment,” Fox noted.
Full and final settlements: Complete claim closure
A full and final settlement resolves wages and medical coverage. The injured worker receives a lump sum, and the claim closes completely. This approach works when the injury has stabilized, and future medical needs are predictable. Because medical coverage ends, most injured workers work with an attorney for this type of settlement.
Comparison: Stipulated vs. full and final settlements
| Aspect | Stipulated | Full and final |
| Wage benefits | Settled with lump sum | Settled with lump sum |
| Medical coverage | Remains open | Closes |
| Future treatment | Covered for work injury | Not covered – claim closed |
| Best for | Injuries with unpredictable future care needs | Injuries that have stabilized |
Key players in the settlement process
Settlement involves several parties, each with a specific role:
- Injured worker: No one can force the injured worker to settle. It’s their decision to agree to any settlement.
- Attorney: For complex cases, many injured workers hire attorneys to protect their interests, evaluate settlement offers, and negotiate on their behalf.
- Claims team: MEM’s experts evaluate the case and work toward a fair resolution. “Our approach is collaborative, not adversarial,” Fox said.
- Employer: Your role is limited – settlement is between the carrier and injured worker. Stay informed through your adjuster, and don’t pressure your injured worker about settlement decisions.
💡 Pro tip: Maintain a positive relationship with your injured worker throughout the settlement process. Employers who stay supportive often see better outcomes and may find opportunities for the employee to return to work.
The settlement process
The process starts when your claims adjuster identifies that settlement might be appropriate. After discussions with the injured worker about their recovery and prognosis, negotiations begin.
Based on case specifics, the carrier makes an initial offer. “The goal is fair compensation that reflects the injury’s impact and any future needs,” Fox explained. After negotiation results in an agreement, formal documents are submitted to the state Division of Workers’ Compensation. A judge reviews the settlement to confirm that it’s fair before approving it.
Simple stipulated settlements might take a few weeks, while complex, full and final settlements can take several months. “The process moves at the pace it needs to move to reach the right outcome,” Fox said.
11 steps to settlement
- Injury stabilizes or maximum medical improvement reached
- Claims adjuster assesses settlement appropriateness
- Discussion with injured worker (and attorney if represented)
- Medical evaluations and impairment ratings (if needed)
- Initial settlement offer presented
- Negotiation between carrier and injured worker/attorney
- Settlement documents prepared
- Submitted to Division of Workers’ Compensation
- Judge reviews and approves settlement
- Settlement payment issued
- Claim closed (fully or partially depending on type)
How settlement amounts are determined
“Settlements are based on case specifics and legal framework, not guesswork,” Fox emphasized. Settlement amounts reflect:
- Severity and permanence of the injury: Permanent disabilities settle differently than temporary injuries
- Medical costs: Both past expenses and projected future needs
- Lost wages: Benefits paid and potential future wage loss
- Permanent impairment ratings: Translate to specific compensation amounts under state law
- Individual factors: Age, occupation, and earning capacity
- Legal framework: State workers compensation guidelines and precedents
➡️ Here’s an example: If an injured worker would receive $500 monthly for life in ongoing benefits, a settlement offers that as a lump sum, adjusted to present value.
Objective information – medical records and wage data – isn’t negotiable. It is what it is. What may be debated is interpretation: How permanent is the impairment? What are reasonable future medical needs? How has the injury affected earning capacity? Settlement is a compromise, and the first offer is rarely final. “The goal is an amount both sides view as fair given the circumstances,” Fox said.
Common questions about settlement
Here are some of the most common questions and concerns that arise regarding settlement.
How does settlement affect my e-mod?
Settled claims still count in your experience modification calculation. What matters is total claim cost – including the settlement amount – not whether the claim settled. Settlement can actually help your e-mod by providing closure rather than considering ongoing reserves that might be estimated higher than the final amount.
Will my injured worker be protected?
Yes. Key protections include:
- Required agreement: The injured worker can’t be forced to settle.
- Attorney representation: Protects the injured worker’s interests and ensures fair settlement.
- Court approval: A judge confirms the settlement is appropriate.
- Medical coverage options: Stipulated settlements keep medical open if the condition changes.
Full and final settlements close medical coverage, requiring more careful evaluation. “That’s a bigger decision, and that’s why we make sure injured workers understand what they’re agreeing to,” Fox explained.
Best practices for employers during settlement
While employers typically don’t have a direct role in the settlement process, it’s important to stay in communication with both the injured worker and the claims team.
- Stay informed but hands-off. Ask your adjuster for updates so you understand the timeline, but don’t pressure your injured worker about settlement or try to influence their decision. “Employers who try to push settlement often create problems,” Fox noted.
- Continue exploring return to work options. Settlement doesn’t mean the injured worker can’t return to your employment. Modified duty is a great option.
- Maintain positive relationships. Show genuine concern for recovery throughout the process
- Work closely with your claims team. Ask questions, provide requested information promptly, and trust your carrier’s expertise.
- Learn from settled claims. Review with your adjuster to identify prevention opportunities
After a claim settles, ask yourself: What led to this injury? Was there a hazard you could eliminate? Focus your energy on preventing future injuries rather than dwelling on settled claims.
📍 Read next: Road to Recovery: 5 People Who Join You on Your Claims Journey >
Approach the settlement process with confidence
Settlement is a normal part of work comp claims management, not something to fear. When an injury is serious enough to require settlement, the process provides a structured, legally protected way to reach a resolution while ensuring the injured worker receives appropriate compensation.
MEM’s claims team handles settlements with the same care and integrity we bring to all claims management – working toward fair outcomes that protect injured workers while providing you with closure and cost certainty. If you have questions about a settlement or an open claim, we’re here to help.
Questions about an open claim? Contact your MEM claims adjuster directly or call 800.442.0593. For more about our claims approach, check out A Support System Employers Can Count On: How MEM Handles Claims.
Frequently asked questions: The settlement process
No, you shouldn’t pressure an injured worker to settle. Settlement is the injured worker’s decision to make with guidance from their attorney and medical providers. Pressuring them can damage your relationship and create legal issues. Focus on maintaining open communication, offering return to work opportunities if appropriate, and working with your claims team.
Settlement amounts typically reflect the present value of future benefits, so total cost is often comparable to or less than continuing payments indefinitely. Settlement also provides cost certainty and brings closure on your experience rating once complete.
With a stipulated settlement that keeps medical open, the injured worker can still access treatment if their condition worsens. With a full and final settlement, the injured worker accepts the risk they won’t be able to reopen the claim. This is why full and final settlements require careful medical evaluation and why most injured workers work with attorneys for this type.
A straightforward stipulated settlement might take a few weeks. Complex full and final settlements can take several months. Timeline depends on how quickly medical evaluations are completed, how long negotiations take, and the court’s schedule. Your claims adjuster can give you a better estimate for your specific situation.
Typically, no. Settlement hearings involve the injured worker (and their attorney if represented) and the insurance carrier’s legal team. You’re generally not required to attend unless there’s a specific reason. Your claims adjuster will let you know if you need to be involved.
For full and final settlements, no – the claim is permanently closed. For stipulated settlements where medical remains open, the medical portion can have ongoing activity if the injured worker needs treatment, but the wage portion won’t reopen. This is why the type of settlement matters and why injured workers need to understand what they agree to.
Settlement itself doesn’t affect your insurability. What matters is your overall claims history and loss experience. The best way to protect your insurability is to prevent injuries through strong safety programs.