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Case Law Update: Workers’ Comp Settlement Lien on 3rd Party Claim Rejected

A Buckingham County Circuit judge ruled last month, in Spicer v. Robinson (VLW 018-8-065, case no. 16-99, 6/20/2018), that a workers’ compensation (“WC”) insurance carrier had no lien against a third-party recovery for the amount the company paid to settle Claimant’s future benefits.  This is not controlling precedent, but persuasive precedent, though it still has the potential to impact workers’ compensation settlements, particularly the P&O (Petition and Order) paperwork.

The workers’ compensation insurance carrier paid a total of $160,744.08 prior to the WC settlement agreement ($121,427.00 in medical benefits to health care providers and $39,317.08 to Claimant in indemnity benefits). Thereafter, Claimant and insurance carrier resolved the future benefits of this claim for $182,500.00. The workers’ compensation carrier attempted to assert a lien for the combination of the $160,744.08 which had been paid out prior to the order approving settlement plus the $182,500.00 which was paid out after the order approving settlement had been entered, for a total lien of $343,244.08.

However, Claimant’s third-party attorney asserted that the lien should only include the medical and indemnity amounts paid prior to the order approving settlement, thus excluding the final settlement payment. In what appears to be a case of first impression, the Circuit Court Judge, Donald Carl Blessing, agreed and limited the lien to $160,744.08.

The Circuit Court Judge seemingly relied upon case authority cited by counsel for the Claimant and found that under Noblin v.Randolf Corp., 180 Va. 345 (1942) and Slusher v. Paramount Warrior, 336 F. Supp. 1381 (W.D. Va. 1971), as a matter of law, the lien created under the Workers’ Compensation Act does not include the $182,500 voluntarily paid to plaintiff by Flagship City Insurance Company to settle the plaintiffs claim for future benefits under the Act on a lump sum basis. Counsel for the workers’ compensation insurance carrier objected to this ruling and asserted, rightly so, that the case law relied upon by the Claimant did not stand for the proposition that a settlement extinguishes the statutory lien and that Claimant’s position provided for an impermissible double recovery.  It seems unlikely that this particular Opinion will be appealed because the Opinion specifically noted that the parties had reached a compromise settlement in light of the ruling.

Although the workers’ compensation settlement contracts were not included (or even cited) in the ruling, it appears likely that the parties outlined their lien in terms of what had been prior to the date of the settlement agreement and did not explicitly include the amount to be paid pursuant to settlement and following entry of the order by the WC deputy commissioner. The lesson here is that when drafting workers’ compensation settlement petitions and orders, the Employer and workers’ compensation carrier should explicitly outline that their lien rights upon any third-party claim includes the full settlement amount to be paid pursuant to settlement agreement following entry of the order by the Deputy Commissioner.  Parties might explicitly state that this is a material term of the agreement, and that any reduction of the lien must be repaid to the insurer by the employee from any third-party settlement.  Regardless, this issue is likely to recur given the language of this particular opinion.

If you would like assistance in dealing with a workers’ compensation claim with a third-party component or any related legal matters, please contact Megan Wagner at 804.377.1275 or mwagner@setlifflaw.com or Steve Setliff at 804-377-1261 or ssetliff@setlifflaw.com.

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