8.4 Subrogation
Library | Workers' Compensation Practice in Virginia (Virginia CLE) (2020 Ed.) |
8.4 SUBROGATION
8.401 Employer-Insurer's Rights. Sections 65.2-309, 65.2-309.1, 65.2-310, and 65.2-311 of the Virginia Code were amended in 2004 to create a lien on behalf of the employer against any verdict or settlement arising from any right to recover damages that the employee may have against any "other party" for that injury. An "other party" is generally considered to be a stranger to the employment and to the work being done. 190 A suit may be maintained in the employee's name or the employee's personal representative's name, 191 the employer's name, 192 or the insurer's name. 193 The object of these sections is the reimbursement of the employer or the employer's insurer
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when the employer is compelled to pay compensation as a direct result of the negligence of another party. 194
In a diversity action to recover against a third party, the employer and the insurer are frequently considered "real parties in interest" within the meaning of Rule 17(a) of the Federal Rules of Civil Procedure and may be named parties plaintiff. 195
The employer's subrogation rights are triggered automatically when the injured employee files a workers' compensation claim against the employer. 196 The subrogation provisions of the Act create no new rights against a third party. They merely assign to the employer-insurer the rights of the injured party that existed against an "other party" at the time of the injury. 197 Additionally, an employer does not have to file a motion or petition before a verdict is rendered in an employee's action against a third-party tortfeasor in order to protect its rights of assignment and subrogation.
The ruling from the Virginia Supreme Court in Yellow Freight Systems, Inc. v. Courtaulds Performance Films, Inc. 198 clarified that a carrier may no longer assume that it can enforce subrogation rights for workers' compensation payments made to injured employees. The plaintiff, a driver for Yellow Freight, was injured when he was exposed to hazardous chemical fumes while making a delivery for his employer at Courtaulds. He filed a products liability suit against this third party and reached a $450,000 settlement with the company in exchange for a full release of his claims against Courtaulds. The settlement provided that the employee would be legally responsible for satisfying all outstanding liens arising from or because of the injuries sustained by him. The employer then filed a petition pursuant to section 65.2-310 seeking a determination of the amount of workers' compensation benefits paid to the employee and ordering the company to pay Yellow
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Freight that amount from the proceeds of any settlement paid to the employee. The trial court ruled that the employer's petition was untimely because the employee's release of Courtaulds extinguished Yellow Freight's claim.
The Supreme Court affirmed the trial court's ruling and held that the employer's claim against the proceeds of a recovery from the third party is dependent on the employee having a viable claim against the third party at the time the petition or motion is filed. In this case, the employer's petition was filed before a verdict but after the third party and the employee had agreed to settle the claim. Because the employee no longer had an enforceable right to recover against the third party, the employer's right of subrogation was also no longer enforceable.
However, in 2004 the General Assembly cleared any doubt regarding the employer's right to recover workers' compensation benefits. Sections 65.2-309, 65.2-309.1, 65.2-310, and 65.2-311 have been amended to provide that an employer's payment of workers' compensation benefits creates not only a subrogation interest but also an actual lien against any proceeds obtained by verdict or settlement from a third party or recovered pursuant to the uninsured or underinsured motorist provisions of a motor vehicle insurance policy carried by the employer. 199 If the employee receives proceeds of a settlement or verdict and the employer's lien has not been satisfied, the employer has the right to recover its lien either as a credit against future benefits or through a civil action against the person who received the proceeds. 200 Before this amendment the employer had only a subrogation interest in a recovery by the employee against a third party that it had to enforce independently or perfect before a verdict. Also, when the employer must sue to recover on its lien, it is not required to bear any share of the reasonable expenses and reasonable attorney fees associated with that portion of its lien that is not preserved.
In Jeneary v. Commonwealth, 201 the employee worked as a delivery person for a restaurant. The employee was driving his sister's car on a delivery when he was involved in an accident. The employee later died from the
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injuries suffered in the collision. The administrator of his estate filed a claim against the employer and the Uninsured Employer's Fund seeking payment for medical and funeral expenses. The administrator also filed a wrongful death action against the driver of the other vehicle involved in the accident, who had no insurance. The employee's sister maintained insurance on her vehicle through State Farm, which settled the wrongful death matter. The Uninsured Employer's Fund asserted a lien against the settlement proceeds for workers' compensation benefits paid by the Fund. A health-care provider filed a petition to intervene in the settlement proceeding seeking distribution of settlement funds designated to it.
The court in Jeneary held that the Fund did not have a lien on the settlement proceeds of a wrongful death action filed against the tortfeasor where those proceeds are derived from uninsured motorist coverage in a private insurance policy maintained by the injured employee or third party. 202
The court also held that section 65.2-601.1 prohibits all debt collection activities, other than routine billing and inquiries about the status of a claim, instituted by a health-care provider before the resolution of the employee's workers' compensation claim, including the filing of legal process to collect the debt. Therefore, the administrator's motion to stay the health-care provider's efforts to force distribution from the wrongful death settlement should have been granted.
8.402 Intervention of Employer. Although the employer-insurer, having made payments to the employee, may institute an action against a third party, it is usually the employee who does so. In that circumstance, the interests of the employer-insurer will be protected automatically by the court. The court in which the third-party action is pending must, after reasonable notice to the parties and the employer, ascertain the amount of compensation and expenses paid by the employer, less a proportionate share of attorney fees and expenses under section 65.2-311, and deduct the amount out of the judgment. The employer no longer must petition or move the court to protect its interests.
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Failure to notify the employer-insurer of the third-party action can jeopardize the employee's right to further compensation.
8.403 Management of Third-Party Claims. Both the employerinsurer and the employee may participate in a third-party action, and it is not reversible error for the court to subordinate the counsel of a party joining the suit to the counsel of the party bringing the suit. 203 Rea v. Ford 204 has been interpreted to mean that, ordinarily, in a suit involving an insurance carrier's attorneys, the attorneys will retain control. 205
8.404 Consent for Third-Party Settlements. The employerinsurer must obtain the approval of the Commission and the employee before settling a third-party claim. 206 Although there is no requirement that the employee obtain the Commission's approval before settling a third-party claim, settlement without the consent or approval of the employer and the insurance carrier may jeopardize the employee's right to future compensation benefits.
The employee who settles without the knowledge and consent of the employer-insurer impairs the subrogation rights of the latter, and further compensation benefits will be forfeited. 207 This is true even if the carrier knows of the pending third-party claim but does not know of or approve the settlement. 208 Evidence that the employer may have been aware of the pending third-party claim does not prove that the employer was given the opportunity to consent to the settlement or was even given notice of the settlement. 209
An employee who prejudices the employer's right of subrogation in a third-party claim may lose his or her right to compensation. However, to be
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relieved of its liability to pay compensation benefits, the employer must show that the employee prejudiced its right of subrogation. 210 In Overhead Door Co. v. Lewis, 211 the court considered whether a claimant should lose his right to future workers' compensation benefits because of his lawyer's malpractice that resulted in the dismissal of a third-party cause of action and prejudiced the employer's subrogation rights. The employee's personal injury suit was dismissed with prejudice because his attorney failed to comply with North Carolina rules of civil procedure. The court held that when a third-party action is dismissed due to the negligence of an attorney relied on by both the employee and the employer to protect their respective rights, this omission cannot be charged against either the employee or the employer. Acts or omissions of the claimant's attorney in a third-party suit should not necessarily be deemed acts or omissions of the claimant, and the employer should not be permitted to stop the payment of workers' compensation benefits to the claimant.
Even where a subsequent non-work-related accident exacerbates a compensable injury, settlement of the subsequent suit can impair subrogation rights and, thus, bar entitlement...
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