It’s a tale I’ve told many times: the injured party who settles out and finds that the award is entirely taxable. The 1996 Small Business Job Protection Act did eliminate the need for a tort judgment but left the personal physical injury or physical sickness requirement for Section 104 exclusion. This recognized the trend in the law towards no-fault and other statutory remedies that eliminated the need for a finding of fault. Ser my blogpost “The Egg and I,” 1/22/15.

Physical injury may have been at the core in Toni C. Perry, Docket No. 4647-25, filed 3/25/26, an off-the-bencher from Judge Nega, but the stip of settlement in her State law case didn’t make that clear enough.

“Pursuant to the settlement agreement, the lump sum that petitioner received was for a general release of all claims except for those related to her Connecticut Workers’ Compensation Commission Claim…. Petitioner presented evidence and testimony of physical injuries unrelated to this settlement and many predating the alleged date of the back injury she claims underlies the settlement. Petitioner did not testify or provide any evidence to show that any portion of the settlement proceeds were used or designated for amounts paid for medical care attributable to those injuries.” Transcript, at p. 7.

Workers’ Comp is the exclusive remedy for on-the-job physical injuries, except for employer intentionally-inflicted injuries or employer-created dangerous conditions.

Toni’s testimony shows she didn’t understand the settlement but that’s not the issue.

Toni is represented here by the Quinnipiac University Law School’s LITC. Who represented her in the PI case is not stated, but I won’t unload on him/her. CT has a high bar to avoid Comp exclusivity, and Toni’s employer has plenty of resources to fight a tort claim. Pleading physical injuries on the job will get a swift motion to dismiss for want of jurisdiction.

“Petitioner’s counsel argued that petitioner could just as easily sued for workers’ compensation. But see CONN. GEN. STAT. sec. 31-284(a) (2025); Suarez v. Dickmont Plastics Corp., 639 A.2d 507, 510 (Conn. 1994). They then continued that this somehow supports their position that the settlement is not taxable under section 104. While the Court takes no position on the proper tax treatment of this alternative, it is clear that the lawsuit settled here did not give rise to proceeds that are eligible for exclusion under section 104(a)(2).” Transcript, at p. 8.