Taking Credit? SB 487 to Limit Third Party Lien Recovery in Peace Officer and Firefighter Cases
December 2025
Many of you are likely familiar with the existing, traditional concepts of subrogation and credit rights in California’s workers compensation system as set forth in Labor Code section 3852 et seq. It’s bad enough when an employee is unfortunate enough to sustain a significant industrial injury – but when that injury is caused by a negligent third party, it’s all the more frustrating.
The silver lining in these cases involving third party defendants, of course, is that the employer or insurance carrier has the right to subrogation. Put another way, the employer is able to seek reimbursement from a liable third party for the benefits they have had to pay in the underlying workers compensation case. On top of that, assuming that there is no contributing employer negligence associated with the injury, an employer is then also entitled to assert a credit against future workers compensation benefits that become due – up to the amount of the injured worker’s net recovery in the associated third-party lawsuit per Labor Code section 3861.
Unfortunately, this system of equitable recovery and credits is about to be significantly diluted – at least as it pertains to industrial injuries sustained by most peace officers and firefighters in California – based on changes to be implemented by the newly passed legislation in SB 487, which will be effective January 1, 2026.
The first significant change under SB 487 is that the employer’s lien recovery against the third-party insurance policy will be capped at 1/3 of the policy limit – regardless of how much the employer may have already paid in benefits. The caveat to that is the employee must still demonstrate that their total damages are greater than the net recovery after the employer’s claim is satisfied and the insurance policy limits are not sufficient to cover both the employee and the employer’s damages.
So, in a case where the third party’s policy limit is $300,000.00 (and the combined damages are in excess of that amount), the employer’s maximum lien recovery (or reimbursement for the damages caused to them by the third party) would be $100,000.00 – even if the employer had provided benefits in excess of that amount to date.
The second significant change under SB 487 is that an employer will no longer be able to assert credit against future workers compensation benefits for the net recovery secured by the employee through the litigation. Therefore, employers and carriers can no longer offset future benefits. This applies to benefits including temporary and permanent disability, medical treatment, and vocational rehabilitation.
The ability to apply credit to future benefits is one of the most important cost-containment measures that helps keep workers’ compensation premiums affordable. With the implementation of SB 487, we can anticipate a rise in workers’’ compensation insurance premiums.
The combination of the recovery cap and the loss of credit rights against future benefits will likely cause many claims to remain open longer, which will increase reserves and overall claim costs.
SB 487 was passed with the purpose of ensuring specified peace officers who are injured in the line of duty retain a larger portion of the damages recovered from a third party. However, the actual effect of the bill strips self-insured employers and insurance carriers of full recovery for injuries caused by negligent third parties.
Traditional subrogation strategies for claims involving peace officers will need to be re-evaluated to ensure maximum recovery. Expectations regarding third-party recovery should also be reassessed. All peace officer claims involving third-party negligence should be swiftly reviewed and an updated subrogation plan should be developed in conjunction with subrogation specialists.
While the intended consequence of the bill is to financially protect peace officers and provide more financial security following significant injuries, the financial harm to self-insured public entities will be significant. This new law will especially have a sizable impact on counties, cities, and other public entities that are involved in workers’ compensation claims for law enforcement officers and firefighters. This new law places strict limits on subrogation recovery and removes the ability to off-set future benefits, which has long been a cornerstone of cost control in public safety claims.
Written By:
Jonathan W. A. Liff, Esq., Partner, of our LFLM-Sacramento Office
Laughlin, Falbo, Levy & Moresi, LLP.