In third-party subrogation, how does a lien affect the distribution of the recovery?

• A. The lien reduces the net recovery to the employee
• B. It has no effect on the net recovery
• C. It increases the employee's share
• D. It is irrelevant to the recovery

Answer: (A)

In third-party subrogation, any lien on the third-party recovery is paid out of that recovery before the employee gets anything. The plan that advanced benefits has a right to be reimbursed from the third-party settlement or judgment, so the amount left for the employee is reduced by the lien. For example, if the third-party recovery is $10,000 and there’s a $2,000 lien, the employee’s net recovery would be $8,000 (before considering any other deductions like attorney fees). The lien does not increase the employee’s share and it isn’t irrelevant—the lien directly lowers the amount the employee ultimately receives.