An obscure and unpublished circuit court order from Buckingham County, Virginia, is being circulated by trial lawyers across the Old Dominion State for the proposition that a workers’ comp carrier is not entitled to subrogation for or reimbursement of any amounts it “voluntarily” pays as compensation pursuant to a lump-sum settlement of the workers’ comp claim for future benefits.
The order created quite a stir because it appears to contradict many years of established Virginia workers’ compensation subrogation law and provide injured employees with the ability to reduce liens which included compromised workers’ compensation claims. However, a more considered review of the order itself and the cases on which it purports to rely reveal that the buzz is much ado about nothing. The law in Virginia with regard to a workers’ compensation carrier’s statutory rights of subrogation and reimbursement hasn’t changed—even a little—despite the fervent wishes of those who wish it had.
The June 20, 2018 order, signed by Buckingham County Circuit Court Judge Malcolm Booker, was in the civil case of Stephen Spicer v. Timothy Robinson, Case No. 16-99. The unpublished and un-appealed order denied Flagship City Insurance Company a workers’ compensation lien on a $182,500 lump sum settlement of a workers’ compensation claim which had been brought by Stephen Spicer. On July 19, 2018, the Virginia Lawyers Weekly published a short blurb authored by News Editor Peter Vieth entitled “Comp Carrier Has No Lien For Lump-Sum Settlement.” Despite the title, the precedential impact of the order cannot be underemphasized.
Only Flagship City Insurance Company can say for sure why this order was not appealed, but an unpublished and un-appealed trial court order has no precedential value and Virginia rules provide that one should never cite an unpublished opinion from a lower court to a higher court. The Virginia Fourth Circuit has a local rule which says that citing to even an unpublished opinion (yet alone a trial court order) is “disfavored.” L.R. 36(c). Of course, that circuit also provides an exception to the rule when “an unpublished disposition of this court” has precedential value in relation to a material issue in a case. They are, of course, referring to unpublished Court of Appeal decisions. The Court of Appeals of Virginia has essentially said you are wasting ink by referring to such decisions, because they have “no precedential weight whatsoever.” Practitioners are free to cite unpublished opinions in trial courts, but unpublished trial court order carry less than zero precedential weight.
In denying Flagship City Insurance Company its subrogation rights, the Spicer order runs contrary to both established Virginia subrogation law and the underlying legislative purposes and intent of workers’ compensation subrogation. It allows for a double recovery by the employee—something which is not allowed in Virginia. The purpose of § 65.2-309 is to reimburse the carrier which is compelled to pay compensation as a result of the negligence of a third party and to prevent an employee from obtaining a double recovery of funds already paid to him by the carrier.[1]
The mystifying court order seemingly and without explanation relies on two cases: Noblin v. Randolph Corp.[2] and Slusher v. Paramount Warrior.[3]
Noblin v. Randolph Corp.
The only issue before the court in Noblin was whether an unsatisfied judgment obtained by an injured employee against a negligent third party constituted a bar to compensation from the employer for the same injuries. It dealt with a 1932 amendment to the Virginia Workers’ Compensation Act. Prior to the amendment an employee could not sue a third party after he obtained an award.[4] Afterwards, he could. The court held that the carrier was entitled to exercise the right of subrogation after it “shall have paid any compensation for which the employer is liable or shall have assumed the liability of the employer therefor.” The decision has absolutely nothing to do with a lump sum settlement or settlement of a workers’ compensation case and its effect on the carrier’s statutory right of subrogation/reimbursement.
Slusher v. Paramount Warrior
The single issue addressed in Slusher was whether a subcontractor qualified as a “statutory employer” so as to provide it with exclusive remedy protection from suit. If the subcontractor performed work which was part of general contractor’s trade, business, or occupation, such as to make it a “statutory employer”, it would then be immune from third-party liability under a prior version of § 65.2-302(A). This case also has absolutely nothing to do with lump sum settlements of workers’ compensation claims or the carrier’s statutory right of reimbursement form a third-party settlement or recovery.
The Spicer order fails to explain why a “voluntary” lump sum comp settlement isn’t to be included in a carrier’s lien. Every other reference in Virginia law and § 65.2-309 itself provide for the employer or workers’ compensation carrier to recover all amounts paid under the compensation claim. Section 65.2-311 provides for the employer or workers’ compensation carrier to recover all amounts paid under the compensation claim, less a pro rata share of the claimant’s reasonable attorney’s fees and costs.[5] The statute refers to the lien both as “The amount of compensation paid by the employer or the amount of compensation to which the injured employee or his dependents are entitled,” and “the amount paid by the employer or for which he is liable.” It is conspicuously devoid of any reference to lump sum settlements somehow being an exception to subrogation. In fact, § 51.1-158 clearly provides for and allows an employee or beneficiary to receive a lump-sum settlement in lieu of periodic payments for disability or death under the Virginia Workers’ Compensation Act.
The Spicer order also ignores the fact that workers’ compensation subrogation in Virginia has long been worthy of protection in order to further its legislative intent. As the court in Gartman put it:
The purpose of that statute is clearly to reimburse an employer who is compelled to pay compensation as a result of the negligence of a third party and to prevent an employee from obtaining a double recovery of funds already paid to him by his employer.[6]
The Gartman court said they were “not inclined to adopt a strangled reading of a state statute to make it fit our present facts.” If only the Hon. Judge Booker had exercised such discipline in Spicer. The quid pro quo of the Virginia statute is the guarantee to the employee of medical coverage and lost wage replacement regardless of fault while at the same time providing the employer who is compelled to pay unlimited damages regardless of fault with a statutory right of reimbursement.[7] If a court is going to contravene the purpose of the statute in providing the employer/carrier with subrogation rights, it could at least provide some support.[8]
And lest we forget, one of the key benefits of workers’ compensation subrogation inures to innocent small businesses across Virginia in the form of lower workers’ compensation premiums. Judges and legal scholars agree that subrogation recoveries are a critical component in calculating the cost of workers’ compensation premiums for Virginia employers, large and small.[9] The complicated calculation of workers’ compensation premiums necessarily involves the concept known as the Experience Modification Factor. The Experience Modification Factor (also known as an Experience Modification Rating, EMR, Experience Modifier, or just the Mod) is an adjustment that is made to the Workers’ Compensation insurance premium of American employers. This means that the calculation of insurance premiums for an employer takes into consideration a number of factors, including prior years’ payroll, loss history, and subrogation recoveries. One common misconception is that these factors are calculated by the state. In most states, this is not true. Experience mods are usually calculated by rating bureaus (or as they are now designated, Advisory Organizations). Many states use the National Council on Compensation Insurance, Inc. (NCCI) for this work, but other states have their own rating bureau.
In 2005, the Workers’ Compensation Subcommittee of the American Academy of Actuaries reported to the U.S. Senate Judiciary Committee on the dangers and economic harm associated with efforts to limit subrogation rights in the workers’ compensation arena, acknowledging that insurance premiums for employers are generally determined in the process of underwriting taking into consideration and counting on the fact that subrogation rights will apply.
Workers’ compensation is an anomaly in American jurisprudence and is known as “The Great Trade-off.” In exchange for unlimited liability for injuries to employees, employers were given protection from tort liability and an ability to recover their workers’ compensation benefit payments whenever a third-party tort recovery was realized by the injured employee. Subrogation is a vital component to the entire U.S. system of workers’ compensation and is worthy of protection at all costs.
Sadly, the Spicer order was never appealed, so the error it clearly contains was not timely corrected. It was the proverbial tree falling in the woods until it was given notoriety in the July 19, 2018 article titled, “Comp Carrier Has No Lien For Lump-Sum Settlement.” Whatever the order stands for, it certainly is not the proposition that a carrier is not entitled to be subrogated for amounts it pays under a lump sum settlement, the reimbursement of which is permitted and protected under the Virginia Workers’ Compensation Act.
If you should have questions regarding this article or subrogation in general, please contact Gary Wickert at gwickert@mwl-law.com.
[1] Gartman v. Allied Towing Corp., 467 F. Supp. 439 (E.D. Va. 1997).
[2] Noblin v. Randolph Corp., 23 S.E.2d 209, 210 (Va. 1942).
[3] Slusher v. Paramount Warrior, 336 F. Supp 1381 (W.D. Va. 1911).
[4] Va. Stat. § 65.2-101 (defining an “award”). “Award” means the grant or denial of benefits or other relief under this title or any rule adopted pursuant thereto. Simply paying benefits is sufficient.
[5] Va. St. § 65.2-311.
[6] Gartman, supra.
[7] Overhead Door Co. of Norfolk v. Lewis, 509 S.E.2d 535 (Va. App. 1999).
[8] Tomlin v. Vance International, Inc., 470 S.E.2d 599 (Va. App. 1996).
[9] See Jeffrey A. Greenblatt, Insurance and Subrogation: Where the Pie Isn’t Big Enough, Who Eats Last?, 64 U. Chi. L. Rev. 1337 (1997), citing Harry L. Sutton, Jr. and Allen J. Sorbo, Actuarial Issues in the Fee-For-Service/Prepaid Medical Group, 46 Center for Research in Ambulatory Healthcare Admin. 2d ed 1993.
