Virginia Court of Appeals Defies Trial Lawyers Association
The Virginia Court of Appeals just gave a big boost in the arm to Special Arbitration of workers’ compensation liens. Article First (Compulsory Provisions) of the Special Rules and Regulations (revised January 3, 2006) states:
Upon settlement of a claim or suit, signatory companies must submit any unresolved disputes to Arbitration Forums, Incorporated (herein after referred to as AF) where: (c) a workers’ compensation carrier or self-insured seeks to recover reimbursement of workers’ compensation benefits from an alleged tortfeasor.
This establishes that a workers’ compensation carrier is able to utilize arbitration for recovery for the benefits it has been called upon to pay as a result of injuries caused by the negligence of third parties. Although this medium for resolving smaller workers’ compensation liens has been met with mixed results and some confusion, the Virginia Court of Appeals has decided a case which highlights some of the financial benefits of pursuing subrogation via Special Arbitration.
In Williams v. Capital Hospice, 783 S.E.2d 67 (Va. App. 2016), the employee was injured in an auto accident while working for Capital Hospice and received $4,060.19 in workers’ compensation benefits from Companion Property & Casualty Insurance Company. Companion filed Special Arbitration against the third-party’s liability carrier, Victoria Fire & Casualty, and received an arbitration award for its entire lien. Nearly two years later, the employee settled her third-party action for $10,000, and argued that Companion owed her $1,353.40, its pro rata share of her attorney’s fees and litigation costs. The Court of Appeals held as follows:
- Companion was not required to obtain approval from the employee or the Commission before arbitrating its claim against the third-party carrier;
- The carrier is entitled to resolve its subrogation lien with the negligent third party without first obtaining approval pursuant to §§ 65.2-309, 65.2-311, and 65.2-313;
- The employer/carrier has a statutory right to recover its lien and the employee does not have a superior right to that of the carrier to recover money owed to the carrier;
- Companion’s recovery of its lien did not prejudice the employee’s ability to secure a favorable settlement in her third-party action; and
- Companion did not owe a pro rata share of attorneys’ fees and litigation costs to the employee because the carrier obtained recovery of its lien directly from the third-party carrier via arbitration.
Va. St. § 65.2-309(C) provides as follows:
No compromise settlement shall be made by the employer in the exercise of such right of subrogation without the approval of the Commission and the injured employee or the personal representative or dependents of the deceased employee being first obtained.
The court interpreted this section “as contemplating the exercise of the employer’s right of subrogation by prosecuting the tort case against the negligent third party” and, therefore, concluded that § 65.2-309(C) did not apply to “an action by an employer against the third party solely to recover its lien.” The legislative purpose behind § 65.2-309(C), when, as here, the recovery of such a lien has no impact upon a claimant’s tort case against the negligent third party, is to allow the carrier to recover its subrogation interest. In this case, the arbitration Companion initiated against Victoria Fire & Casualty was for the sole purpose of seeking reimbursement for its lien and did not in any way implicate the rights of Williams. On appeal, the Virginia Trial Lawyers Association filed an amicus brief in support of Williams.
The Williams court also declared that § 65.2-310 protects the carrier when the employee sues the tortfeasor and operates to protect the carrier’s lien in a third-party action filed by the employee. Section 65.2-309(C) does not apply to an action between the carrier and third party. Because the carrier’s claim was against the third-party liability carrier directly, and was resolved by arbitration, there was no “compromise settlement” as contemplated by § 65.2-309.
Perhaps the best news, however, is that the Williams court also held that § 65.2-311, requiring the carrier to bear a pro rata share of litigation fees and costs, did not apply because the carrier did not benefit from a third-party settlement secured by the employee. Instead, Companion exercised its own statutory right to subrogation and received full compensation for its workers’ compensation lien, without any assistance or involvement of Williams or her counsel.
While this decision is clearly limited to cases in which Virginia’s workers’ compensation subrogation law applies, the case does shine a bright light on some of the benefits of pursuing smaller compensation liens via Special Arbitration. There are still other matters to consider and recovery in Special Arbitration for workers’ compensation remains ideal when:
- Third-party tortfeasor is denying your lien;
- Claimant will not be pursuing the bodily injury claim and recovery is allowed by state law;
- Workers’ compensation benefits that were paid are relatively low and it isn’t cost-effective to pursue through third-party litigation;
- The foreign state provides for an independent right of recovery; and
- Claimant acknowledges that he/she is not represented and will not be pursuing a third-party action.
Recovery in Special Arbitration for workers’ compensation may be problematic when:
- Claimant is represented by counsel and either pursuing or planning to pursue a third-party action, depending on the state you are in;
- Claimant is pursuing an injury claim and by state law your lien is subject to that recovery;
- The foreign state does not provide for an independent right of recovery for the workers’ compensation carrier;
- The time period in which a carrier has to initiate a third-party action has expired and the right to file now belongs to the claimant; and
- Future credit concerns overshadow the carrier’s interest in recovery of its lien.
Although arbitration of workers’ compensation claims is not complicated, the law underpinning a workers’ compensation carrier’s right to subrogation certainly can be. It may be advisable to establish a working relationship with subrogation counsel for arbitration of certain workers’ compensation files. Arbitration of workers’ compensation third-party claims provides an interesting and often under-utilized avenue for assisting subrogation professionals when it comes to smaller workers’ compensation liens. All too often, these liens are forgotten or left on the table because they are simply not cost -effective to pursue in litigation. In Virginia, at least, they may also now save you from having to pay attorneys’ fees and costs to plaintiff’s counsel.
Click HERE to read another article on this topic written by Gary Wickert entitled “Sweating The Small Stuff: Arbitrating Workers’ Compensation Subrogation Files”. If you should have any questions regarding this article or have particular questions or matters that you want to consider for arbitration, please contact Gary Wickert at [email protected].