Consent Order Highlights Limits on Recoupment and Reinforces Procedural Expectations for Carriers

The Texas Department of Insurance, Division of Workers’ Compensation (DWC) recently entered a consent order involving an insurance carrier’s handling of income benefits where post-injury earnings were not disclosed by the injured employee. The underlying facts are familiar. The employee returned to work, earned wages, did not report those earnings, and continued to receive temporary income benefits. After discovering the earnings, the carrier disputed entitlement, asserted an overpayment, and attempted to recover the full amount while referencing Labor Code §415.008.

The Division did not dispute that the employee had post-injury earnings or that those earnings had not been reported. Instead, the enforcement action focused on how the carrier proceeded after discovering the overpayment. In particular, the Division took the position that, absent a Division determination that the employee committed an administrative violation under §415.008, the carrier remained subject to the procedural limits in Rule 126.16 governing recoupment of overpayments. Because the carrier sought to recover more than the rule permits without an agreement or dispute resolution, and asserted a violation of §415.008 without a prior Division finding, the Division concluded that the carrier acted improperly.

The order reflects the Division’s view that a carrier may not unilaterally treat an overpayment as subject to §415.008 for purposes of full repayment, even where the facts suggest that the overpayment resulted from a failure to disclose material earnings. Instead, unless and until the Division determines that an administrative violation has occurred, the carrier is expected to proceed within the recoupment framework of Rule 126.16, including its notice requirements, percentage limitations, and dispute resolution procedures.

This position raises a broader structural question. Section 415.008 provides that a person who obtains an excess payment in violation of that section is liable for full repayment plus interest, while Rule 126.16 expressly states that it does not apply to repayments under §415.008. The consent order effectively bridges that gap by requiring a Division determination before a carrier may step outside the recoupment rule. Whether that requirement is compelled by the statute is not addressed in the order, and any challenge to that interpretation would require careful consideration of the carrier’s risk tolerance and willingness to defend its position.

In the meantime, the order offers practical guidance. When a carrier learns that an injured employee has returned to work and has not reported earnings, the safest course is to treat the situation as an overpayment subject to Rule 126.16 unless and until the Division determines otherwise. That means issuing a notice consistent with the rule, limiting recoupment to the applicable percentage, and pursuing agreement or dispute resolution if a greater recovery is sought. At the same time, carriers should document the employee’s reporting obligations and any prior notice provided, including written communications advising the employee of the duty to disclose earnings and the consequences of failing to do so. That documentation may be submitted to the Division as part of a complaint requesting investigation under §415.008.

This approach preserves the carrier’s position without foregoing the statutory right to full repayment. It is also consistent with the procedural expectations reflected in the consent order, reducing the likelihood of enforcement exposure while leaving open the possibility of pursuing repayment through Division action if the facts warrant it.

Please direct any questions about recoupment generally to GQS@fol.com, and any questions about this consent order specifically to Roy Leatherberry (RJL@fol.com) or James Sheffield (JRS@fol.com).