On July 7, 2006 Pennsylvania Governor Rendell signed Senate Bill No. 1205 of 2006, now known as Act 109, which addresses the obligation to satisfy any overdue child support obligations when issuing payment of $5,000.00 or more in a workers’ compensation (WC) or occupational disease (OD) matter. (How the amount of $5,000.00 is calculated is discussed below.)  Act 109 takes effect 60 days from the date that Governor Rendell signed it. It will therefore go into effect September 5, 2006, and would apply to payments made on or after that date.

This Act adds Section 4308.1 to the Domestic Relations Code 23 P.S. § 101, et. seq. According to Section 4308.1(A) of the Act, the general rule is that any overdue support is a lien against the net proceeds of any monetary award, and any award shall be stayed in the amount equal to the child support lien. The Section does indicate that nothing in the Section allows for the delay in payment while the child support question is explored. However, the Section does make an exception with respect to the payments for WC and/or OD matters.

The requirements for WC and OD matters are addressed in Section 4308.1(F). This Section states that no Order providing for payment of a monetary award can be entered by a Workers’ Compensation Judge (WCJ), unless the prevailing party or beneficiary ( who is a claimant under the WC and/or OD Act), provides the WCJ with a statement made subject 18 PA.C.S. §4904 (relating to unsworn falsification to authorities). This statement must include the full name, mailing address, date of birth and social security number for the prevailing party or beneficiary. The prevailing party or beneficiary is also required to provide the WCJ with either written documentation of arrears from the Pennsylvania Child Support Enforcement System website (PACES), or if there are no arrears, written documentation from the same website indicating that there are no arrearages. If there are arrearages, the WCJ must order payment of the lien for overdue support to the Department of Public Welfare’s State Collection and Disbursement Unit (SCDU), from the net proceeds due the prevailing party or beneficiary.

This means is that before a WCJ can issue an Order providing for a monetary award in a WC or OD case where there is an obligation to pay child support, it is the claimant’s burden to provide information to the WCJ as to the amount of the lien for overdue support or provide information to the WCJ that there is no overdue child support obligation. It appears that if a claimant does not provide this information, then the WCJ can not even issue an Order providing for a monetary award of $5,000.00 or more. This provision is expected to impact substantially in the areas of Compromise and Release orders.

There are two important terms in Section 4308.1(F) that require further explanation: “net proceeds” and “monetary award”.

According to Section 4308.1(I), “net proceeds” are moneys in excess of $5,000.00 payable to a claimant, after payment of attorney fees, witness fees, court costs, reasonable litigation expenses, documented unpaid expenses incurred for medical treatment causally related to the claim, any workers’ compensation or occupational disease indemnity or medical payments and payments to the Medical Assistance Program under Sections 1409 and 1412 of the Public Welfare Code.

Section 4308.1(I) defines a “monetary award” as any portion of a settlement paid as a lump sum negotiated in lieu of or paid as a WC or OD award under a WC policy. This includes self-insurers and to WC or OD policies which are issued by an insurer licensed or authorized to do business in Pennsylvania. “Monetary award” only applies to WC or OD awards which are asserted in Pennsylvania. Although the term does not apply to a lump sum payable through a structured settlement annuity, it would appear to apply to the vast majority of claims originating in Pennsylvania.

If there is no attorney representing the claimant then Section 4308.1(C) indicates that the claimant him/herself is to provide a statement, made subject 18 PA.C.S. §4904 (relating to unsworn falsification to authorities), and written documentation of arrears (or no arrears) to the insurer or paying agent. The insurer or paying agent must then make payment of the lien, or disputed lien amount, to SCDU.

If there is a dispute, based on a mistake of fact, as to the amount of the arrears owed by the claimant , then Section 4308.1(H), states that the amount in dispute is to be placed in escrow with SCDU by the prevailing party’s or beneficiary’s attorney and the escrowed funds shall not be distributed until the dispute is resolved. This section does indicate that the disbursement of the remaining net proceeds of the monetary award is not stayed if there is a dispute; meaning that the amount not in dispute must be paid A “mistake of fact” is limited to errors in the amount of arrearages or mistaken identity. When the dispute is resolved, the amount arrears shall be paid to SCDU.

Section 4308.1(D) indicates that instead of providing written documentation and a signed statement, an attorney or insurer may use a private judgment search company approved by the Department of Public Welfare (DPW), or an insurer may use the services of the child support enforcement lien program operated through a central reporting agency approved by DPW. The attorney or the insurer may deduct the fee for the judgment search from any payment to the prevailing party or beneficiary.

Under Section 4308.1(E), when the insurer or paying agent makes distribution in accordance with the statement made by a claimant and the written documentation as to arrearages or makes payment based on the report of an approved private judgment search company, then the insurer or paying agent are immune from any civil, criminal or administrative penalties for making an erroneous distribution. Additionally, nothing allows for a claim or cause of action against an attorney or an insurer by any person who asserts he is the intended obligee of the outstanding child support lien.

For reasons not quite clear, other than the obvious, Section 4308.1(G), indicates that it does not apply to any monetary award to a claimant under 12 years of age. This means that claimants, 12 and over, would be required to prove that they have no overdue child support obligations.

Further analysis will follow because it appears that there are a number of unanswered questions and issues raised by the Act that will need further clarification via the Legislature or by way of decisions from WCJ’s, the Workers’ Compensation Appeal Board or the Appellate Courts. Nevertheless, since this legislation will go into effect in early September, it is vitally important that each company that makes WC or OD payments inculcate procedures to insure compliance with the law. 

Please do not hesitate to contact us for additional guidance.